Richard Clarida reckons the conditions may be right for the Fed to start hiking rates — by the end of next year.
In a speech called “Flexible Average Inflation Targeting and Prospects for US Monetary Policy” prepared for a Brookings webcast, Clarida said Monday that the US economy is “clearly a ways away” from meeting the standards that would compel the Fed to consider raising rates.
He cited the three conditions set out in the Fed’s outcome-based forward guidance, one of which is, of course, the return of the labor market to levels “consistent with the Committee’s assessments of maximum employment.”
That admits of subjectivity. Even if the language didn’t specify the Fed’s discretionary right to “assess” what counts as full employment, the very concept is nebulous. Economists claim they can estimate it, but the demise of the Phillips curve and other would-be “laws” of economics, continue to suggest that whenever we attempt to speak deterministically about a soft science, we’re trafficking in nonsense.
Nobody knows anything about economics, mostly because “economics” doesn’t exist. Not in the way modern economists insist it does, anyway.
Supposedly, we’ve made progress over the last three centuries, a period during which the concept of “economic man” emerged and the idea that everyday people (not just kings and nations) should seek gain for its own sake metamorphosed from a blasphemous notion punishable by eternal damnation to wholly righteous modus operandi.
As I wrote in “Little League,” humans changed their entire conception of what it means to live over the last 300 years, rationalizing their way to conceiving of avarice as the pinnacle of virtue, just a few generations removed from characterizing greed as the depths of sin.
That process was facilitated by two dozen (give or take) geniuses who, between them, turned the idea of “markets” into a unifying global concept (a frame of reference within which to contextualize human activity) and established “economics” as a practical branch of philosophical inquiry.
But it was always a philosophical endeavor. Attempts to mathematize and codify it were beset with difficulties from the very beginning, a frustrating state of affairs considering the self-evident importance of numerical aggregates in the new “science.”
Just as political science graduate programs sought to replace millennia of rich theory with statistics in a futile quest to make politics a hard science, so too has economics been reduced to increasingly quixotic attempts at quantification.
In both cases, the harder we try, the worse we do. And the sillier we look. Hence wrong-footed pollsters failing to predict the most consequential US election outcome in modern history and PhDs in economics becoming synonymous with dunce caps in the eyes of the public, even as they confer upon recipients the right to indoctrinate new generations of economists with the patently false notion that economics is closer to physics than sociology. The “best” economics PhDs do far better than tenure and book deals. They get to determine the price of money and steer entire economies based on laws that aren’t laws and theories dressed up as facts.
That’s not progress. It’s a doomed quest to make something out of nothing. Modern economists are little more than alchemists. They spend their lives attempting to extract immutable truths by studying the behavior of highly-evolved, but still comically mercurial, apes.
To be sure, many of the names we associate with the development of economics were similarly enamored with the allure of discovering immutable laws. Indeed, many foundational works in the field (which most modern economists haven’t read, by the way, or at least not in their entirety, preferring instead to pore over jargon-laden, peer-reviewed journal articles that owe far more to probability and statistics than they do to any economist) amount to laughably ambitious attempts to explain every aspect of daily life by way of some set of unifying principles or even to craft a sweeping theory of history complete with a prediction about the purportedly inevitable end game. Along the way, there were countless lesser names who derived various equations and formulas, virtually none of which admitted of much explanatory power.
But quixotic though they were, the most important such figures made an indelible mark on history by advancing theories about economic man and the challenges he faced on his quest to better his lot. Many of those theories are enshrined in monumental volumes notable more for philosophical profundity, ambition and sheer scope than for any “laws” discovered.
With just a handful of exceptions, no such works have been published in decades, in no small part because generation after generation of modern economist is compelled to devote ever more resources to alchemy. The same is true of political science.
Importantly, this isn’t a matter of generational bias. It’s not akin to the discussion between a sixtysomething, a fortysomething and a thirysomething about who was the better basketball player, Larry Bird, Michael Jordan or LeBron James. Arguably, monumental works of economics and political philosophy ceased being written at least seven decades ago, and depending on your definition of “monumental,” much longer than that when it comes to political treatises.
Market participants spend an inordinate amount of time obsessing over the extent to which folks like Clarida and Janet Yellen are “wrong” or “right” or “stupid” or “smart.” What no one ever asks (mostly because it raises uncomfortable questions about whether we’d be better off replacing economists, traders and investment bankers with philosophers, psychologists and sociologists), is whether the entire discipline is fruitless, a misbegotten offshoot of philosophy accidentally elevated to the status of a new discipline by a pedigree of thinkers that went extinct nearly a century ago.
Most social sciences are just a tribal language. It is hard to be “in” if you do not understand the language. Shoptalk, vocal dialect just give the ability to participate and criticize. Humans have a need to feel like somebody else is smarter than them and in control. The absolute randomness of so very many things either frightens one or amazes one.
I put you in the amazed camp.
Foucault and Agamben have related but ultimately different takes on the philosophical origins of homo oeconomicus, which align well with what H is talking about. I believe both philosophers are reconcilable. And reconcilable with H as well, hence my comment…
I am curious about H.’s opinion of the work of Oskar Morgenstern & John von Neumann and John Forbes Nash Jr. (My “mathematical grandfather” Isadore Manuel Singer shared an office with Nash starting in 1951 and Nash’s story has always interested me.)
Oh how you hurt. You introduce me to the thoughts of Stephanie Kelton, which in turn leads me to Hyman Minsky. I just start feeling gratitude for your direction, only to have you tell me I’ve been duped.
Don’t be so sure. Didn’t the US budget something like $4.7 trillion because of Covid-19 (with around 70% already distributed)? As Kelton and others have pointed out, when politicians decide something needs to be done, traditional economic thinking is not a real barrier. Deciding on priorities in the obstacle. The jury is still out.
OMG, you are so right! In the days of John Stuart Mill, in my view likely one of the 10 or 15 humans in the last two millennia, the so-called “dismal science” of economics was actually characterized as “Political Economy.” We who studied this largely philosophical field muddled along until the middle of the last century when universities, in a misguided attempt to rid themselves of well-reasoned thought, endeavored to turn their ship around to emphasize the more erudite realm of so-called hard science. Now virtually every new PhD, no matter what field they study, must put some kind of math or statistics in their dissertations to prove they are “scientists.” Economists felt they were truly among the “anointed” when they field was allowed to have its own Nobel Prize. Trouble is, try as they might economists just can’t seem to get their laws right, mainly because economic outcomes in the real world depend on the behavior of individuals who have their own intelligence, goals, resources, politics and interests. You just can’t really collect all that individual diversity and make it into physics or chemistry. Economists, for all their pretense, can’t seem to figure out cause and effect in the real world. All their models are circles, behavioral loops for which outcomes and their reasons are just not all that apparent. Hence … we get many “policy mistakes.” I majored in economics and wrote an undergraduate thesis in a complex sub-field known as welfare economics. I also had courses in my MBA and a whole Economics field in my Finance doctoral program. Through all of that the full “mysteries of the lodge” were not fully revealed but I became convinced that all new Economics PhDs should be subject to some sort of term limits. Arthur Laffer, for example, is well past his sell by date and should be, once and for all, ignored. Note, the gentleman has switched from economics and politics to the more lucrative field of investment/wealth management. Perhaps he finally figured out the real world, perhaps.
My advisor in my philosophy department in college used to say sociology is the obvious taught by the inept. He referred to economics was only the rationalization of avarice. When he retired from the department, he said he was going to travel the world in search of an island to rule as an enlightened civilization. Wonder if he ever found one? Doubtful.
Thats a good one.
Even though the Federal Reserve “tells” us their goals are employment, low inflation, etc. they certainly “act” as if their goals are to inflate away the obligations of the US government, so they don’t have to print too many USD’s and destroy the coveted position as the world’s reserve currency.
That goal would be pretty difficult to verbalize in an acceptable way.
Would not be the first time I have encountered homo sapiens who say one thing and believe/do another.
I used to say the same thing verbatim. For a number of reasons I dropped out of my economics Phd program. This was one of the reasons. The discipline became a contest of who could make the most complicated models- god forbid they had any relationship to the actual functioning world.