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Soothsayers of the 21st Century

September 23, 2010

It’s over!  Yes, according to the economic experts the longest Recession since World War II ended in June 2009!  Don’t you feel better now?  No?  Don’t fret, you’re in good company.  A recent Gallup poll indicates that 82% of your fellow Americans are in agreement with you. President Obama recently held a town hall meeting on CNBC where,

“A woman who said she voted for Obama told him she was deeply disappointed with her lot. ‘My husband and I thought we were beyond the hot dog and beans of our lives. . . . Is this my new reality?’  ’I understand your frustration,’ Obama said. He defended his administration’s efforts to help the middle class, listing achievements such as better protection for mortgage loans and health insurance for those with preexisting conditions.  He also sought to instill confidence among the investor and executive classes, who have deserted him in droves over the past year.”

Thanks for “feeling our pain” President Obama and then swiftly moving into campaign mode with what you’ve achieved for us.  With headline unemployment continuing at over 9%, underemployment at over 16%, $13 Trillion and counting in debt, 1.6% GDP in June, etc., should we be thanking you for this too?

Back in the crash of 2008, I had several months of sleepless nights trying to conjure up a way to save what little wealth I had left.  I had recently completed an MBA in Finance, which meant that I understood more deeply the financial mistakes I had made in the past and the mess we were all in.  At that moment I was wondering if it would be possible to return to a blissful state of ignorance, prior to the knowledge I had now gained through my continuing education.  Unfortunately, that was not to be.

I had taken up reading several economists, like Nouriel Roubini—fondly referred to as “Doctor Doom,” Mark Zandi of Moody’s, Paul Krugman of NYT, and others across the World Wide Web.  I started going to on a daily basis watching interest rates, commodity prices, and currency exchange rates in some vain attempt to divine what was going to happen, what I should do, or where should I put the few dollars I had left.

I also found myself picking up my Bible more—yes, I can hear the collective gasp from the left already.  I happen to be reading in the book of Daniel about an incident where the king was hosting a lavish dinner party that was rudely interrupted by a ghostly hand writing a message on the wall—you know, that’s where we get the modern adage about the “handwriting on the wall”.  No one could read it, so the king called together all the wise men and soothsayers of Babylon and promised great riches to anyone who could explain it.  And then it hit me like a bolt of lightening, that’s who I was looking to in this moment of crisis, our modern day soothsayers, economists, equipped with all their wonderful gadgets.

With their supercomputers whirling and statistics in tow, they prognosticate about our current situation and the direction we are headed.  We have economic indicators—unemployment, GDP, manufacturing indexes, CPI—and financial indicators—M1, M2, Fed rate, yield curve, exchange rates—all sorts of data to be culled, compiled, and interpreted.  And when it comes right down to it with the track record they have had in predicting the future, doesn’t it seem somewhat like the modern equivalent of reading tea leaves?

Gideon Rachman of the Financial Times in his article Time to Sweep the Economists off the Throne states that “the entire attempt to treat economics as a ‘science … defined by its ability to forecast the future’ is misconceived.”  Ask 10 economists what the future is, and you’ll likely get 10 different answers.  Not very scientific in the reproducible results category is it.  Maybe a dose of historical perspective is in order for our economists.   You know, that little saying about those who don’t examine history are doomed to repeat it.  For instance, what about the proposition that maybe the Keynesians are wrong?  We tried their method in the 1930’s-—Great Depression; Japan in the 1990’s—Lost Decade, and now once again in the current Great Recession.  (Is there starting to be a pattern here, or is it just me?)

However the great Pulitzer Prize winners remain undaunted as Rachman continues, “The subsequent financial and economic crash may have dented the confidence of some economists in particular tenets of their discipline. But the Great Recession seems unlikely to dissuade many economists from the more fundamental belief that there are, indeed, predictive ‘laws’ out there, just waiting to be discovered.”  Yes, you just have to break a few nest eggs if you’re going to make the perfect economic omelet.

There was a statement on This Week that the Pulitzer Prize Economist Paul Krugman made once, the gist of which I just can’t seem to get out of my mind.  He was lamenting the inefficiencies of having to run things through the Congressional gauntlet and how no modern Democracy has to contend with these kinds of barriers to getting things done.  Similar to Thomas Friedman’s lament about us not being “China for a day.”

Ah, Mr. Krugman, we’re a Constitutional Republic, not a Democracy, but you’re area of expertise is economics not politics, so it’s not surprising that you got that one wrong. Also, Mr. Friedman, no thanks.

I think Rachman sums up the sentiments we should all be re-examining at this point in our economic slide to serfdom, “This way of looking at the world is less obviously useful to practical men, seeking to make decisions. But maybe it is time for an alternative to the brash certainties, peddled by those pseudo-scientists, otherwise known as economists.”

Copyright 2010 Julie Schmidt.

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