Reality Check
Why does the media assume that the views on the economy of an individual with a BA in English from Yale are worth hearing. Amity Shlaes is a writer, not an economist. It doesn’t make any difference who prints her columns, she doesn’t have the credentials to be taken seriously.
On Saturday, July 12, 2008, she had a piece on page A13 in the Washington Post titled. Phil Gramm Is Right. She was defending the former Senator’s remark that Americans were “whiners” for questioning the health of the economy. Her main argument was her belief that you couldn’t call it a recession unless there were two consecutive quarters of negative GDP growth and that hadn’t happened.
Except that the National Bureau of Economic Research has declared that the recession began in December, 2007, more than six months before her article appeared. While two consecutive bad quarters is definitely a recession, those are not the only criteria, which Ms Shlaes would know if she were an economist, or just some guy with a blog on the Gulf Coast of Florida, rather than an English major.
I have yet to hear a cogent explanation of why almost the only people you ever hear discussing the economy in the media are people who have been demonstratively wrong, and have no idea what the economy is doing, because they don’t know how it works.
I have noticed people taking the trouble to fact check Ms Shlaes work, and that is a waste of resources because she has no real basis for any credibility on economic issues. She has no record of successful predictions, no record of education, nothing that would indicate that her opinion is worth any more than the proverbial cab driver.
English majors do important things and their numbers are dwindling because their worth is not recognized by society at large. Society would be a better place if more of them worked in their area of study or wrote about what they know and not about things with which they have little familiarity.
9 comments
Someone who has a degree in a field famous for saying “math is hard!” is hardly qualified to comment upon what is, in the end, a mathematical subject.
Sort of like the idiots who say that the government spending money means that it takes money away from other places in the economy, as if there is only a fixed supply of money in the economy and the money spent by the government just disappears into a hole in the ground rather than going into the economy and being spent by the people who got it. You’d think these folks had never heard of the invention of the printing press, wherein you place paper in one side, and money comes out the other. I expect their tiny little heads would simply explode at the notion of the fractional reserve multiplier effect and its effects upon increasing the money supply, or de-leveraging and its effects upon decreasing the money supply. But wait, I forget, that requires math, and (all together now!) “that’s hard math! I don’t like math! I prefer to believe the bullshit that the Rethugs are pulling out of their ass, because it doesn’t involve math and makes me feel smart!” Well, congratulations. That qualifies these people to be a Republican. Because all that’s required to be a follower of a failed ideology is to be stupid.
– Badtux the Snarky Penguin
They still don’t understand that you have to start the economy moving again, or there will be no economy.
The saving rate is going up sharply which is a lead indicator of possible deflation. People are worried about having a job and aware that prices are starting to come down. If they don’t do something soon to stop the trend this is going to continue for a decade, not just a couple of years, and it will be harder to restart with every day that passes.
There are several states, California and Florida included, that need help now before the state and local governments start laying off people.
I lost a couple of clients during one of the California budget meltdowns when I was in San Diego. They didn’t feel they could wait for the state to pay them and live on borrowed money until that happened. It was the right decision, because by the time the state paid, they were able to avoid personal bankruptcy, but the business couldn’t get the credit needed to operate. They forgot to gouge huge profits to cover this recurring problem, like the corporations.
To say Shlaes is a “writer” is a slander on the world of authors. She is preeminently an idiot and secondarily a right-wing propagandist. What and where she got her degree is immaterial.
As for “credentials” being needed to write enlightening economics journalism, I am not convinced. Not so very long ago the entire field was known as “political economy.” ( I think I read somewhere it still is known as that in some European countries) Political Economy recognized, rightly in my view, that there is much more to understanding the economy than crunching numbers and drawing graphs — whether for professional journals or on Laffer-able cocktail napkins.
Some of the best economics journalism writing of all time was done by Heywood Hale Broun (the elder), Walter Lippmann, Scotty Reston, I.F. Stone, Michael Harrington, and even Edward R. Murrow, to name just a few liberally educated Pulitzer Prize winners of the last century who didn’t, so far as I know, have doctorates in anything, much less from the approved Chicago vatican.
Economics journalism, like Economics itself, suffered a crippling blow when the “political” part of “political economy” was erased under the pressure of mostly dull-witted academics — every one of whom, of course, had a personal as well as financial interest in spritzing the place up with more exclusive-smelling (and expensive) Ph.D. perfumery.
John, it does not necessarily take credentials to write in the field of economics. But it does take the ability to think both logically and mathematically and the background knowledge acquired by reading extensively in the field. (Says this penguin modestly, since he occasionally writes upon economics topics in a far more accurate manner than any English major ever accomplished). There are many aspects of economics which are obvious once you read about them — like the macro vs. micro paradox of thrift — which someone who has not put in the study simply won’t know about and thus will write utter drivel like this Amity Shales.
Being educated is hard work. Ms. Shales has shown that she a) does not have the educational background necessary to do the work (apparently — it does require significant mathematics to do well, and she has no education in mathematics, and mathematics is *not* something that you can easily self-teach yourself because of the sequential and arduous nature of the subject), and b) doesn’t appear to have read even the basic tomes of the field. Instead she regurgitates right-wing talking points that have some surface plausibility but are utter nonsense once you look at the math. That, rather than credentials, is why I consider her a joke.
One of the greatest ironies of the study of economics is that the first individual to do a systematic study in the field and publish it was a German newspaper reporter who did all of his research and writing in the British Library. Karl Marx was really the first economist, the “father” of the field, if you will. Other wrote what are now recognized as papers on the field, but Karl was the first to do it as a separate and distinct discipline. He may have been appallingly wrong in many ways, but he was the first.
A PhD is focused research that results in the thesis providing an explanation of what you did and what conclusions that you have drawn from the research, which then must be defended. The individuals you cite have done that multiple times on multiple subjects, so they have the requisite credentials. Ms Shlaes fails to do sufficient research to understand what she is writing about and draws erroneous conclusions. If you “cherry-pick your data” you will not be able to defend your results, and that’s what she does.
You don’t need a degree, but in its absence you need the experience that is the equivalent, and she has neither. I can see the problem with a couple of courses in macro-economics, multiple accounting courses, and running my own business. I do my own taxes and I’m the winner in the audits by the IRS, but none of the discrepancies made it to three figures on either side.
The academics got involved because the journalists have been screwing things up since Reagan. The financial reporting hasn’t been worth spit in so long it’s not worth reading. There aren’t even the most basic checks on logic, or any research on the relevant data. We have had wholesale abrogation of the responsibility to determine the truth. All that is left is politics with no economics at all.
Bryan, especially amusing are the idiots who think that a rise in the savings rate on a macroeconomics level is a good thing. As you point out, that is effectively an increase in the loan-vs-deposits reserve ratio, and thus deflationary. Now, that’s not necessarily a bad thing if it is being countered by inflationary government policy, such as, say, a massive public works program funded by printing money (!!!!). But once you get stuck in a deflationary spiral, it’s damned hard to get out, because deflation is inherently debt inflation once the nominal interest rate approaches 0%. Below 0%, keeping the money in the vault or under your mattress is preferable to lending it out, because if the rate of deflation is 4% per year, you earn 4% real interest just by keeping it under your mattress or in your vault. Which of course is a disaster economically, since money that is not moving in the economy basically no longer exists as far as the economy is concerned and does not provide any of the liquidity needed to oil a modern economy. Which causes further deflation, which further is disincentive to lend, and so on until you arrive down at the bottom at a subsistence economy that third-world nations will recognize.
I.e., deflationary spirals are Bad.
But because an individual having more savings is Good on a microeconomic level, idiots think it must be good on a macroeconomic level. It *can* be… but only with a helluva lot of government intervention in the economy to keep the economy from entering a deflationary spiral. Intervention which the idiots who believe savings is Good period refuse to consider because, well, it’s “spendthrift”. Sigh.
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That same increase in the savings rate is also bad news for the effectiveness of tax cuts, which were going to be minimal in the first place. If people are already salting away their money, then the extra is going to savings.
This weekend two of my Mother’s first cousins were visiting, and they all grew up the Depression. They aren’t spending anything that isn’t an absolute requirement. They are in full miser mode. I was going to take everyone out to dinner, a normal part of any visit, but they all felt that was an extravagance. I’m fighting an uphill battle to get my Mother to maintain her normally low level of spending, but the dismal rate the bank is now paying on her funds makes her nervous.
One of the cousins lost $100K in her portfolio, and has reduced her spending to her Social Security check, which she didn’t start drawing on until she was 72. She was forced to retire for health reasons and has been feeling poor ever since.
None of the three is poor in the standard sense of the word, but they are all worried about their children, grandchildren, and great grandchildren. They have seen it before, and know people are not ready for it.
The problem is that when people like this, with some disposable income, stop spending, things are only going to get worse. A lot of people have to save because of major concerns about their job, but when people without those concerns start doing it, deflation is coming. One of the cousins mentioned that if things keep up, wages will go down, just like the last time.
This is no time for screwing around. Every delay makes things worse. People have to see something happening, and soon.
The country has been overconsuming for too many years. Some contraction is going to be necessary. But I agree, those who are in decent financial shape should continue reasonable spending as usual.
Saturday as I was doing my usual shopping at the warehouse grocery store and discount outlet stores I was shocked to find the parking lot full! On the way home I stopped at the library and it was packed… again, the parking lot was full. It seems everyone has taken on my thrifty ways.
I think the government is going to force the banks to lend… soon. Because if they don’t we will get deflation. Once people see credit opening up this will stop some of the fear. And I believe that fear is what’s driving a lot of otherwise solvent people to save up a few extra thousand and delay major purchases. Fear that they won’t be able to get a credit line on their home if they need to make a major repair, an unexpected medical bill, etc. So they are saving up.
What I fear is a few years from now when all that cash hits the streets… inflation will shoot up. If the money supply is doubling won’t inflation do the same? Economic theory always makes my head hurt.
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There is a logical disconnect on what happens with savings, and what it does to the economy. Saving is good, unless too many people do it. The system will normalize around a steady condition, but when there are major swings, as from a negative rate to around 3%, it puts a lot of pressure on the system.
Anytime a trend reaches a tipping point, the system will react with a jerk, rather than a smooth flow. Too many people spending results in inflation; too few in deflation. Right now the increase in savings and the lost jobs are all tipping the balance toward deflation, which is the most painful and persistent of economic ills.