On his Grumpy Economist blog, John Cochrane wrote an interesting post on Economists as Public Intellectuals. What caught my attention in his post was the following:
“I’m an actual economist (MIT PhD degree shown)”
This is an argument by authority, by credentialism. He, Austan, has a PhD from a Big Name institution. What follows is therefore a result of that special knowledge, that special insight, that special training, that actual economists have. He doesn’t have to offer logic or fact, which you won’t understand, and you aren’t allowed to argue back with logic or fact, unless perhaps you too have a Big Name PhD. What follows isn’t just going to be Austan’s personal opinions, it inherits the aura of the whole discipline. By implication, anyone who disagrees isn’t an “actual economist.” [emphasis added]
Here is the Economics Profession’s idea of credentialism: We have a specific educational credential and if you don’t have the same credential there is nothing you can say we will listen to and act on.
This is worth repeating. If you don’t have an Economics PhD, the Economics Profession isn’t remotely interested in what you have to say. No more people like Keynes who don’t have an Economics PhD for them.
This lack of interest by the self-appointed economic experts isn’t surprising.
Consider for a moment the Information Matrix. Regular readers know it explains the design of the global financial system, it explains why financial crises occur, it explains where financial crises originate in the global financial system and it explains how to end financial crises.
If that was all the Information Matrix did, it would be worthy of teaching in Economics 101.
In addition, the Information Matrix links humans as economic agents to humans as behavioral beings with a fondness for a good story. It is only in the presence of perfect information humans can act in the rational way Economists who build models assume they act. Perfect information gives them the ability to Trust, but Verify any story they are told. In the presence of opacity, humans act as behavioral Economists predict.
|Does Seller Know What They Are Selling?|
|Does Buyer Know What They are Buying?||Yes||No|
|Yes||Perfect Information||Antique Dealer Problem|
|No||Lemon Problem||Blind Betting|
Had the Information Matrix been developed by someone with an Economics PhD, this person would be on the very, very, very short list for a Nobel Prize.
However, it wasn’t developed by someone with an Economics PhD. So despite the ability of the Information Matrix to answer many questions the Economics Profession can currently not answer, it is effectively ignored. By ignoring it, these self-appointed economics experts undermine trust in experts.
The policies pursued by Ben Bernanke are a classic example of where a self-proclaimed credentialed Economic expert actually did more harm than good. Mr. Bernanke willingly told everyone he was an MIT trained Economics PhD as well as a Great Depression scholar. The story he told was this combination gave him special insight and training into how to respond to a financial crisis.
However, his insights and training were wrong.
This isn’t my opinion, it is the opinion of the late Anna Schwartz. At the time she gave her mid-October 2018 interview on the global financial crisis to the Wall Street Journal, she not only had an Economics PhD, but was also the Economic Profession’s pre-eminent Great Depression scholar. In addition, she happened to be Milton Friedman’s co-author on A Monetary History of the United States. In her interview, she said Bernanke’s policies were fundamentally flawed as he was fighting the last and wrong war. She then spelled out what needed to be done.
Of course, Bernanke and the rest of the global central bank Economic PhDs chose to ignore her to the detriment of all of us.
Considering their willingness to ignore even a highly regarded “actual economist”, what chance would a non-Economic PhD like myself have when I introduced the Information Matrix?
Did I hear you say absolutely none?
You would be right.
Every year since 2007 I have been describing using the Information Matrix what needs to be done to end the financial crisis and restore a self-sustaining economic recovery. I have also said what regulations would work and what regulations are worthless.
Of course, Economists choose to ignore me. Instead, they pat themselves on the back for both the unsustainable economic malaise their policies have created and making Too Big to Fail a permanent addition to the financial landscape.
The problem with this self-congratulations is it undermines the credibility of both the Economics profession and expertise in general.
Why? Most people have figured out the rising inequality driven by the PhD Economists’ policy response to the financial crisis has failed them. Patting yourself on the back for failing 99% of the people is a really bad idea, but that doesn’t stop the Economic PhDs.
Most people have figured out a million new financial regulations including ring-fencing and higher capital standards haven’t eliminated the problem of Too Big to Fail. Patting yourself on the back for championing policies that make the Too Big to Fail problem worse is a really bad idea, but that doesn’t stop the Economic PhDs.
Ultimately, by focusing on credentialism, the Economics Profession is undermining the idea that an Economics PhD is a meaningful credential. The profession did not see the financial crisis coming (I did). The profession cannot explain why it occurred (I can using a simple physical model of 2 securities that differ only in their transparency). The profession cannot explain why its preferred policies haven’t generated a self-sustaining recovery (I can).
If you cannot do what should be incredibly basic economics, what good is an Economics PhD credential?