Chris Leithner: A Reviewee Reviews a Reviewer – Part II

H/T ValueInvestingWorld

The examples are legion, but one will suffice. “The current economic situation is in many ways better than what we have experienced in years,” the Organization for Economic Co-operation and Development (OECD) confidently prophesied in the Economic Outlook it published on 18 July 2007. Seers are usually wrong, and often egregiously so; but they seldom doubt their own prophesies:

Against that background, we have stuck to the rebalancing scenario. Our central forecast remains indeed quite benign: a soft landing in the United States, a strong and sustained recovery in Europe, a solid trajectory in Japan and buoyant activity in China and India. In line with recent trends, sustained growth in OECD economies would be underpinned by strong job creation and falling unemployment.

“Why,” asks Ciro Scotti in Robert Shiller Explains Why Economists Won’t Help Fix the Economy (Business Insider, 9 October 2011), “didn’t economists see the financial crisis coming? And why in the face of joblessness and a floundering economy are they, in the words of one top economist, ‘unable to be helpful’?” Scotti continues:

Yale economist Robert Shiller [one of the winners of the 2013 Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, which is erroneously called the “Nobel Prize in Economics”] has a very simple answer – at least to the financial crisis question: His colleagues in the dismal science are wearing blinders these days, with most examining only narrow strands of data instead of taking a world view that encompasses other disciplines. Economists are no longer the “worldly philosophers” they once were, argues Shiller. … “The financial crisis that started in 2007 and that continues today is widely taken in the popular press as evidence of a lapse, moral or otherwise, in the wisdom and judgment of the economics profession,” Shiller and his wife, Yale psychologist Virginia Shiller, write in a pa-per presented to the 9th annual conference of Columbia University’s Center on Capitalism and Society.

“These days,” Shiller told the conference, which occurred in September 2011, “economists seem to miss things that are important because they’re so busy.” The Shiller-Shiller paper added:

Specialization coupled with strong competitive pressures within academia leads to a situation in which academics often feel that they just do not have time to ponder broad issues and learn even basic simple facts outside [or even inside] their specialty. Their general knowledge may be embarrassingly limited, and so they may retreat into their own specialty and produce re-search which contributes in small ways to the development of the field, but fails to pay attention to the larger picture.

These blinders of academic specialization, lapse of wisdom and judgment and embarrassing limitation of general knowledge don’t just seem to underlie – they appear to epitomize and pervade – a review of The Evil Princes of Martin Place: The Reserve Bank of Australia, the Global Financial Crisis and the Threat to Australians’ Liberty and Prosperity (CreateSpace, 2011) which appeared in the inaugural (Summer 2012) issue of The Journal of Peace, Prosperity and Freedom. In Part I (Letter 167-170, 26 October 2013 – 26 January 2014) I explored one of the consequences of these blinders, lapses and limitations – namely Kates’ criticism that “moral arguments” obscured the book’s “main message.” In his review, Kates seemed at times to contend that “morality” has no place in economic or financial analysis. Yet claims about ethics, explicit as well as tacit, permeated his review. Part I of my review of his review concluded

If you think [as Kates appears to believe] that the morality or otherwise of a particular action depends not upon its consequences, but upon its perpetrator’s purpose, that a bad motivation is a necessary condition of an immoral action and that a good intention is a sufficient condition of a moral action – or, at any rate, that a good intention will render you blameless if it unex-pectedly begets bad consequences – then you hand an overwhelming victory to welfare-warfare statists.

See full Leithner Letter: A Reviewee Reviews a Reviewer – Part II in PDF format here.

Chris Leithner: A Reviewee Reviews a Reviewer - Part II