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Why Much of the Population Thinks Economists are Charlatans

by Mike Kimel

Why Much of the Population Thinks Economists are Charlatans

Noah Smith asks why people think economists are charlatans. He concludes it has something to do with trade.

I submit the answer is much, much simpler, and I think it deals with the part of economics which has most visibility with the public: macroeconomics. Read this post from a few years ago about an economist who is reasonably prominent outside academia. But it wouldn’t be difficult to make a list of other economists, whether with a bit of prominence outside academia or inside it or both, for whom one could write essentially
the same post. Heck, if we wrote down a list of chairs of the President’s Council of Economic Advisors, budget directors, and Treasury Secretaries, how many of them couldn’t be the subject of that sort of post? And let’s be realistic, there is no cost to doing so. Consider the folks who retroactively predicted double digit growth rates in 2002. None of them suffered consequences, regardless of the damage they caused.

What happens if you do the same thing in another field? What happens if to a guy who peddles Lysenkoism in Biology? Think they’ll make him Dean of a prominent Medical School? A physicist who makes her life
work debunking the Michelson Morley experiment ain’t gonna go far either. Obvious charlatans in biology or physics or chemistry get treated like charlatans by people who call themselves biologists, physicists and chemists, even those who work in different parts of the field. People who call themselves economists (whether macroeconomists or otherwise) sit on panels and attend conferences with the obvious charlatans. They shake hands with the obvious charlatans, they don’t spit on the floor and turn their back on the obvious charlatans, and most damning of all, they don’t refer to them as obvious charlatans. And meanwhile, the obvious charlatans do very well. Fudging and shading the data can pay very well, especially if one is well spoken and looks presentable.

The problem is, a career where it is easy and lucrative to be a charlatan, where being an obvious charlatan has no consequences or costs but plenty of benefits will attract more and more obvious charlatans. In fact, there are a couple old principles in economics, from back in the day when the field wasn’t as infested that can tell  you what happens next. We’re long past the point where the public has figured it out. The only thing that will save the profession is if economists figured it out too.

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Pay no attention to the man behind the curtain.

As the title indicates, this will be a more than usually confused post.
The stimulus was the now famous grief over elementary fairness which errupted when “[Judge] Scott Fairgrieve of Nassau County District Court, wrote that ‘swearing to false statements reflects poorly on the profession [of law] as a whole” and fined lawyer Steven J Baum $20,000 for false statements in support of a foreclosure. Baum also suffered a Schack attack when Judge Arthur M. Schack referred to one filing as “incredible, outrageous, ludicrous and disingenuous.”

Baum wrote “Pay no attention to the man behind the curtain.”

In Toto not a good time to be a sleazy lawyer in New York (when was the last time that was true?).

The part which stunned me was

Anne Reynolds Copps, the chairwoman of the real property law section of the New York State bar, said, “We had a lot of concerns, because it seemed to paint attorneys as being the problem.” Lawyers feared they would be responsible for a bank’s mistakes. “They are relying on a client, or the client’s employees, to provide the information on which they are basing the documents,” she said.

So her view is that lawyers do not have the responsibility to check the claims of fact they make to judges, to look at the evidence. So what exactly do they do? Is the claim that their job is to look good in a suit and speak proper English with a confident tone?

Lawyers have discovered that they can make a whole lot more money by not doing their jobs and claiming they have done their jobs. Big surprise. Now the idea that they might have to give up that income, because they don’t have time to do what they have been claiming they have been doing is shocking.

I think that this is a very general phenomenon.

I don’t know how much money Baum made, but it is clear that one lawyer with a huge income must have been mainly taking money for doing what he didn’t bother to do

“David J. Stern, a lawyer whose Florida firm has been part of an estimated 20 percent of the foreclosure actions in the state, has been accused of filing sloppy and even fraudulent mortgage paperwork.” One firm [working on] 20% of the foreclosures, how many partners? How many associates with law degrees? How many robo signers?

Bankers and lawyers used to earn good money for, among other things, due diligence, keeping records, keeping proof if the records were contested, and complying with burdensome laws and regulations.

Relatively recently, they have earned immense incomes claiming they had done those things without bothering to do them. I guess that the fee charged by the lawyers who didn’t glance at the evidence is the same as the fees charged by lawyers who check if something is true before telling it to a judge. Clearly, one can make a lot of money claiming to have done something difficult and time consuming without bothering to do it.

Banks charge fees for handling transactions, but clearly stopped bothering to, say, handle transfer of a mortgage in a way that the entity which paid them could foreclose when the time came.

Banks charge to exchange currencies. If they are trading pieces of paper for pieces of paper, then they have to hold money to do that and they have to keep people from stealing it. If I am taking money out of an ATM in a country with a different currency from my bank account, I am forcing some computer somewhere to multiply two numbers. Ouch. But they charge as if they were doing it with pen and paper (or maybe an abacus).

I’d guess that most of the huge profits of the financial services sector are based on separating gamblers from their money, but a large part come from charging for services not rendered and another large part come from charging a lot for services which cost very little to provide now that they have computers.

The terror at the idea that judges won’t accept “because I say so” as proof shows how much the system depends on no one checking what was actually done in exchange for the huge flow of fees.

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