James Montier is back! Behavioural Investing: Barbie does economics

Behavioural Investing: Barbie does economics: "The sheer hubris of many in the economics profession never ceases to amaze me. Take for instance a recent paper by Kartik Athreya of the Federal Reserve Bank of Richmond[1] entitled “Economics is Hard. Don’t let Bloggers Tell You Otherwise”. In a move that is eerily reminiscent of the controversial talking Barbie of the early 1990s who fatefully uttered “Math class is tough”[2], Athreya’s short paper essentially lays out a quite staggering claim :- that economics should be left to those with a PhD in the subject!"

It's good to see James is back blogging. And on a frightful subject.

Two things amazed me about the paper that James discusses here. Firstly, it disappeared awfully quickly off the web for a bit. The arrogance generated so much righteous indignation that the section of the web where it lived just curled up in a black hole is my guess. Secondly, arthraya talks so much about the Fallacy of Composition and internal consistency, but says nothing about the huge gaps where those calling for austerity are ignoring said Fallacy. He focusses his wrath on those, including Krugman and De long, who often point out that austerity will feedback through income to lower demand, and even worse deficits. Thirdly (yep, I can't count), if DSGE models of money policy are the sort of things that make economics really hard, then he'd better do more work on consistency, because these models aren't stock/flow consistent in money, which is sort of basic for monetary policy.