In response to an FT article by Gillian Tett on 31st March 2016, entitled 'The inflation enigma needs unorthodox answers'
“If the Fed, or any central bank, wants an illustration of why ethnographic research matters, they need only look at the last credit bubble, when most economists missed the subprime mortgage boom because they shunned on-the-ground research”
The problem with such sensible ideas is that this research would inevitably provide them with an uncomfortable amount of evidence to suggest that the economy doesn't resemble their models at all. When you've spent thirty years imagining yourself to be a scientist it's bound to come as a shock to discover that all that time you've been a Neo-Keynesian Astrologer with Friedman rising and your moon in Krugman.
Such a shock would leave them incapable of convincing even themselves that they have the foggiest idea of what they're doing.
Do you really want to be responsible for causing such trauma Ms Tett? Can the central bankers cope with the creative destruction of a thought system dedicated to abolishing creative destruction?
Think carefully...on the one hand the world will benefit enormously...on the other you might not get a Christmas card from Martin Wolf or Larry Summers...I know I'm asking a lot...but please think it over...
A fellow reader replied:
The problem with monetary policy is not qualitative vs. quantitative research. Central bankers make politically negotiated decisions, as most policy makers in any field do. This would not be a problem if central banks worked in the taxpayer's interests.
As an anthroplogist Tett should know this. All the mumbling citing (highly dodgy) economic data and zillions of kilograms of economic studies is just to provide a smokescreen and a pretense of "rationality".
In my experience, having read some hundreds of reports of "expectations" data put out by McKinsey, KPMG etc, I find them to be the mist unreliable type research study and a total waste of time and money. (1) The methodologies are just bad and (2) interviewing people about expectations is not very reliable.We humans don't always do what we say or think consciously.
Honestly, I think the subprime mortgage issue was not missed, it was deliberately kept out of the papers until the last minute. Subprime was only the most visible tip of an iceberg; it was outright fraud and most people who were involved in it--even at the lowest levels--processing loan applications knew about it.
I don't think we've even got to the iceberg yet. I just was reviewing a paper outlining the stress testing procedure at a TBTF bank--the situation is a nightmare. There are hundreds of people and hundreds of separate data pieces involved and nobody has a clue as to what's going on. Many know the situation is a farce, others have brainwashed themselves into believing there's some science to the process. I think what they have in common at the end of the day is that they provide their silence in return for their salary. This is directly related to monetary policy because the primary driver of monetary policy is keeping the comatose TBTF on life support.The mechanisms play out a little differently in the US as compared to the EU but at the end of the day, the result is the same.
Bravo, and thank you.