Why Do People Think Economists are Charlatans?

Noah Smith asks an interesting question and offers the non-economist answer:

“Now, maybe this was just an expression of good old American anti-intellectualism, like Insane Clown Posse’s views on magnetism, or the Republican party’s denial of evolution. But Bob Hall, who was a discussant on the paper (and who I’ve heard referred to as “the greatest working macroeconomist”) had a different interpretation. “The average American,” Hall memorably declared, “thinks of economists as masters of an alien religion, with teachings no more relevant than Buddhism.” Non-economists, he said, see economists not as empirical scientists, but as deductivist Aristotelian philosophers, sitting around and thinking of how economies ought to work while totally ignoring the evidence of how they really do work.”

Being a non-economist, I have to side with the non-economists.  To me, this problem is rather simple.  Economists tend to dabble too much in ideology and not enough in reality.   I’ve described this as a problem resulting from the lack of a Da Vinci methodology.  In other words, there is too much confirmation bias occurring in economics where economists create solutions extending from a preferred ideology as opposed to a solid understanding of our surroundings.  That’s putting the cart before the horse.

I hate to pick on the Market Monetarists, but just look at what they do.  They essentially design an entire school of thought around a policy idea and have conformed their world view around it.  Nevermind if it conflicts with the way modern banking works or if the actual implementation of such an NGDP Targeting policy would run into real-world problems.  They fit that square peg in a round hole regardless of how small that round hole is.

Of course, market monetarists aren’t the only ones.  Austrian economists will find almost any way in the world to prove that the world works better when government is not involved in the economy.  Keynesians will find any way to prove that countercyclical policy is always the best solution to problems.  The list goes on.  It all wreaks of ideology.

MR is far from perfect.  Hell, I don’t even get involved in policy ideas directly via MR so you could say that MR just totally ignores policy and actually fixing the problems.  That’s a huge problem.  I know that.  But I think the world’s understanding of money, economics and finance is so poor that it would be irrational to start telling the world that we need a new arm when most of us don’t even realize that we have arms.


Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. Cullen, I know this may seem anathema to you, but you need a mathematical model of MR. If you want a useful description of the system, then use mathematics, or even a computer model. Now you become an engineer, who uses models as tools to not only understand the system but make predictions on how the system will develop or respond. I understand your reservations of models; there is a right way (scientific) and wrong way (economic) to do modeling. However, modeling is an inherent human endeavor to understand the world around us. We do it implicitly and subconsciously.

    • I don’t mean to be rude, since you gave a smily face, but why are you asking if it was a rhetorical question? My intention was a suggestion.

      • Androing, I don’t think the CW’s question was directed at you because #1 he posted his own remark, not a reply to yours and #2 the title reads “Why Do People Think Economists are Charlatans?”

        The Author of the post asked a Question, and CW was asking said author if it was “rhetorical”.

        Just my thought. :)

  2. Schumpeter made similar observations — too bad we seem to forget them every generation:

    “At its core, says Schumpeter, economic theory is not a political philosophy but rather, in the “unsurpassably felicitous phrase” of the Cambridge economist Joan Robinson, “a box of tools.” While acknowledging that economic theory has yet to fulfill its potential, he notes that criticism of it often had political roots-in large part because “economists indulged their strong propensity to dabble in politics, to peddle political recipes, to offer themselves as philosophers of economic life, and in doing so neglected the duty of stating explicitly the value judgments that they introduced into their reasoning.” An unfortunate result of all this had been the discrediting of economic theory itself through the discrediting of the political stances of many theorists.

    One of the real bases of all social science, Schumpeter thought, should be psychology, which analyzes the human feelings “in terms of which all fundamental explanation must run.” Schumpeter knew that Menger and others of the Austrian School, in their emphasis on individuals’ choices, had implicitly moved psychology toward the center of economic thinking. Yet, he noted with regret, economists generally did not consult or work with professional psychologists. Instead, they preferred to invent their own assumptions about the mental processes of producers, consumers, and people in general.

    Thomas K. McCraw. Prophet of Innovation: Joseph Schumpeter and Creative Destruction (pp. 454-455). Kindle Edition.

    – And –

    “Toward the end of his life, Schumpeter issued a remarkable credo about the primacy of history. Of the three basic building blocks of economics-theory, statistics, and history-he wrote that the last “is by far the most important.”

    “I wish to state right now that if, starting my work in economics afresh, I were told that I could study only one of the three but could have my choice, it would be economic history that I should choose. And this on three grounds. First, the subject matter of economics is essentially a unique process in historic time. Nobody can hope to understand the economic phenomena of any, including the present, epoch who has not an adequate command of historical facts and an adequate amount of historical sense or of what may be described as historical experience. Second, the historical report cannot be purely economic but must inevitably reflect also “institutional” facts that are not purely economic: therefore it affords the best method for understanding how economic and non-economic facts are related to one another and how the various social sciences should be related to one another. Third, it is, I believe, the fact that most of the fundamental errors currently committed in economic analysis are due to lack of historical experience more often than to any other shortcoming of the economist’s equipment.”

    Thomas K. McCraw. Prophet of Innovation: Joseph Schumpeter and Creative Destruction (pp. 249-250). Kindle Edition.

  3. I read on Scott Sumner’s site, about a weak ago, an article where he was arguing the recession was caused by there not being enough physical $100 bills in the hands of drug dealers (and a few other unsavory types). I really scratched my head.. is he being serious? Or ridiculous to prove a point?.. I honestly couldn’t tell… even after reading the comments. I’ll see if I can dig that up:


    Ah, it was tax-evaders, drug dealers, and foreigners (TDFs). Ha! But he’s an advocate for the $1T coin.. though he thinks it will be a political disaster to use it.. go figure.

    • Sumner also thinks Japan has prices a hundred times higher than ours even though the yen is equivalent to a penny not a dollar.

      He should mostly be ignored

      • Ah, here’s the original article about the $100 bills:


        I hadn’t read it before, and despite your advice I can’t help myself. It’s like reading some strange new language… I can make hardly any sense of what Scott is talking about. I really wish I could… I wish I could map out the mechanics of his world view so I could compare and contrast with Cullen’s world view.

        I read some of the comments too… JP Koning, Bill Woolsey … I like those guys, but I can’t really understand them either. I then scan through looking for comments by Scott replying to my favorite commenters… but he keeps blowing my mind. I just can’t figure out how serious he is about some of these assertions. He points out to one commenter that if the commenter were to look up Scott’s previous articles, they’d find instances where he claimed the recession was due to a lack of nickles… and another where he claimed it was a lack of some other denomination. So he’s saying “Ya, see I’m very proud of the bizarre claims I made in the past. They both contradict and support what I’m saying now. Isn’t it clear what I’m getting at? Do you see the cosmic joke?”

        I vastly prefer reading Cullen’s blog. It actually makes sense to me! I just read Sumner when I want a dose of the bizarre. Scott’s recent article about the $1T coin though was fairly readable. It was more about politics than economics (which is what made it readable).

        • TOM Me’boy, instead of reading what Scott or Cullen wrote, read what YOU have wrote:

          ” I can make hardly any sense of what Scott is talking about. I really wish I could… I wish I could map out the mechanics of his world view so I could compare and contrast with Cullen’s world view.”

          Tom your answer is right there.

          Bottom Line is if it is to complicated, then FORGET IT.
          Life is not that complicated.
          We as humans make things more complicated than they really are.
          Think about it.
          Is a women good looking or not, Is a steak tasty or not.
          Hell Is a fish taco good or not?

          My Brother Tom, I think you may be getting caught up in a self perpetuating quagmire of “What If’s” Kinda like Johnny does.

          In the end, you have to pick a path to follow and not look back. Base your choice on gut feeling of the character of intention of concept and thought.
          That’s all my friend.. :)

          • Thanks for the advice Cowpoke… perhaps you’re right. I’m not tempted to dump my own views (which are MUCH closer to MR)… I just with I could understand what all the fuss is about w/ MM and Sumner. There’s no denying that he’s been gaining influence!

            • Tom, My Brother (In Monetary Understanding) I feel your pain.
              However, what do you mean by ” There’s no denying that he’s been gaining influence!”?

              Is he a magic man with a Kachina doll or something?

              I Perhaps I should follow these folks so I have a better understanding of what they speak, However, I being a student of Human Nature find it better to follow a Humans character. and when one follows Cullen and the Prag Caps Character you will find a humble one that is held in check by reality of historical fact.
              So that’s all I can attest to based on what I have observed.

                • Tom:
                  “Sumner decided to start a blog that argued for his old idea of targeting nominal GDP, which in a crisis means expanding the money supply until you reach your target.”

                  Tom, what effect would this proposal by Sumner have?
                  I don’t see it having much in a balance sheet recession where people are maxed out on debt related credit.
                  How does “targeting nominal GDP” encourage spending and growth?

                  • Wow, this is kind of odd… being put in a position to explain a theory I don’t really understand, but I’ll give it a shot:

                    1st off, I don’t think Sumner believes in the “balance sheet recession” theory. I think he’s probably a “loanable funds” believer, which says that one person’s debt is another person’s savings, and so there’s no net indebtedness going on at all… or something like that. It’s a neo-classical thing. For loanable funds believers, banks don’t matter at all. They are simply intermediaries and can be removed from consideration in all theories. If that’s not what Sumner believes, somebody please correct me!

                    Secondly, I think the gist of what he’s getting at is that by targeting NGDP growth (I think! … sometimes they call it NGDPLT where LT stands for “level target”)… Sumner uses 5% per year as a good figure … that they are targeting the proper variable (rather than money supply, inflation, interest rates, unemployment rate, or GDP). NGDP represents both actual GDP growth, and inflation combined. So if you target 5% and inflation is 2%, then GDP growth is 3%.

                    If GDP growth is 0% however (or less!), then you are getting 5% or greater inflation. This is good, he would argue, because it helps keep employment high (something to do with “sticky wages” which I think is a neo-Keynesian idea) and perhaps because it get’s investors to do something other than park their money… in well… money! Thus helping get money moving in society, and helping to correct the low GDP growth rate. I think they might refer to this as the “hot potato” effect.

                    Now in times of overheated real GDP grown (say it’s 5%), then this policy would tend to tighten the money supply to bring inflation down to 0% again.

                    If you watch that hour long testimony on capitol hill in the youtube video, they explain it pretty well (I tried watching last night but fell asleep about mid way through).

                    So that’s it! I know Sumner (and several of the other Market Monetarists) are also libertarians and fans of Milton Friedman. They clash with traditional Monetarists over what the target should be… and that’s about it. Of course they class with neo-Keynesians over fiscal stimulus (which they think is useless) and Austrians over “sound Money” … in fact Robert Murphy (I think his name is) logs into Sumner’s site with a use name that’s something like “Scary_things_Scott_Sumner_Says” .. and then he takes those scary things and re-posts them on this own blog.

                    The MMers clash with post-Keynesisans, Minskyites, MMTers, MRists, and “circuiit theorists” over pretty much everything, and Scott basically has stopped even trying to understand them or engage with them in any way. He admits he knows very little about how the banking system works. Which seems exceedingly bizarre to me.

                    So that’s it! In summary, he’s like a pro-inflation-when-needed Monetarist… and so he knows he’s out of the mainstrean and refers to himself as “Heterodox” in his thinking, but other than that slight difference (with conventional Monetarists) over what the Fed should target, he reads like a typical Chicago school libertarian Milton-Friedman loving right-of-center neo-classical thinker.

                    Any help? That’s pretty much all I “know” and it’s probably full of errors.

                  • Shoot… it looks like the comment I just made to you has disappeared into the ether again… I’m sure it will eventually show up again it always does, … anyway, there’s one more thing I wanted to add: You asked what effect I think Sumner’s proposal would have. I really don’t know! One of the main things I’m confused about by his proposal is how it is to be implemented. He talks about setting up some kind of NGDP futures market, to help facilitate it, but I don’t think he’d say that’s strictly necessary. I think he’d do it by the typical Fed OMO, QE, and other operations (w/o the special market). The big difference, from what I can tell is that he’d have the Fed specifically state to the world what it is it is doing: “We will be doing X until NGDP growth reaches 5% a year” … and that alone (he believes) will have the desired effect on the economy.

                    Personally, that last bit seems pretty shaky to me. I don’t really understand how more QE type operations is going to have that much effect when we have a “balance sheet recession” as you state. … regardless of what the Fed announces when it undertakes it.

                    Cullen points out that their main weakness is that they start off from the philosophical position that only Monetary measures will make any difference.

                    Personally, I suspect Sumner has a lot of strange ideas… and that’s what I’d love to know for sure. He will write some pretty provocative things and attract a lot of attention for them… but the discussion usually goes right over my head. I think I’d need to know a lot more about neo-classical theory to understand what he and his commenters are talking about most of the time.

                  • Here’s where I think NGDP targeting and the “balance sheet recession” have at least some tie-in:

                    Say the economy has no growth or is contracting… then Sumner’s FED would do what’s required to cause at least 5% inflation. Well that inflation is going to eventually make life easier on debtors (if they can afford to buy bread long enough so they don’t starve to death in the mean time!) since it’s devaluing the debt they hold. That’s about it for overlap as far as I can tell.

  4. These are not practical men like the those old guys – this guy never had a chip on his shoulder.

    He was a very very practical man.

    Maybe economists should study siege warfare……..killing fields and other stuff.

    At least they should study energy flow charts and the like.

    The Physiocrats understood that all wealth (at that time) came from a agricultural base as this was the basic energy system of the day.

  5. Here’s 10 Reasons for starters:

    The following are 30 Ben Bernanke quotes that are so stupid that you won’t know whether to laugh or cry….

    #1 (October 20, 2005) “House prices have risen by nearly 25 percent over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals.”

    #2 (On 60 Minutes in response to a question about what would have happened if the Federal Reserve had not “bailed out” the U.S. economy) “Unemployment would be much, much higher. It might be something like it was in the Depression. Twenty-five percent.”

    #3 (February 15, 2006) “Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.”

    #4 (January 10, 2008) “The Federal Reserve is not currently forecasting a recession.”

    #5 (When asked directly during a congressional hearing if the Federal Reserve would monetize U.S. government debt) “The Federal Reserve will not monetize the debt.”

    #6 “One myth that’s out there is that what we’re doing is printing money. We’re not printing money.”

    #7 “The money supply is not changing in any significant way. What we’re doing is lowering interest rates by buying Treasury securities.”

    #8 (November 21, 2002) “The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost.”

    #9 (March 28, 2007) “At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.”

    #10 (July, 2005) “We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.”

    The other 20:

    • Never saw that show, I liked that preview until 109 seconds into it, I saw the same scene that was at 57 seconds. Go look, watch the Guy on the left smoking a pipe. The same guy. WTHeck?

  6. Its not just economists who are seen as charlatans, rather anybody who talks like an economist, walks like an economist or looks like one.

    I think the actual problem boils down to the fact that the man in the street has the sense that things just ain’t fair, but no-one from the wonkosphere has actually connected with them, speaking plain english, to address things they care about. Mainly why inequality seems impossible to address without great pain, but also why they are getting poorer despite all this wonderful technlogy.

    By way of example, having taken a quick look through the MR primer, I noted that it states the government has an inflation constraint rather than a solvency one. This is true but ignores the fact that the government also has a much more binding constraint of inequality. There is a very strict limit as to what can be done using money or fiscal policy unless the distribution of actual real world capital that attracts profits is somehow shared more equitably otherwise benefit handouts and stimulus efforts all end up in the hands of the usual suspects.

    This fact is obvious to many of the angry people on forums of all political stripes round the internet, yet it doesn’t get much of a mention on progressive blogs which claim to be on the side of the people. In fact the tea party aligned sites get this aspect right, while getting the monetary mechanics completely wrong.

    • MR doesn’t support policy ideas specifically. You could understand MR and think that a pegged currency is appropriate for a particular country. You could support tax cuts. You could support more spending. The policy conclusions that someone decides on are totally up to them based on their understanding of MR. There aren’t MR policies. So yes, you can support MR and support a Job Guarantee.

  7. I think it’s more, non-economists view economists who say things that challenge their worldview as charlatans and economists who they agree with as brilliant prophets that are maligned by evil forces.

    • It’s also notoriously hard to prove any economic theory as correct, or even to construct an experiment, compared to hard sciences like maths or physics.

  8. I never realized that denial of evolution was a Republican Party platform! No – what average Americans have begun to do is to tune out bloviating pseudo-intellectuals that refuse to have civilized, well intentioned discussions about complex topics. They are also suspicious of those that revel in creating ever more complex systems, whereby the system is always gamed against the average person by the so called “experts”. Add to this an education system that has been run into the ground by Democrats and unions (some agenda snarkiness for Noah Smith), throw in corruption and lying at the highest levels of society and you have a breeding ground for fear and loathing.

    • Politics is really only good for it’s entertainment value. Government has gotten so big that it’s hard to find any one party with which you agree even on a majority of it’s ideals. For laughs I visited a website where you could test with which presidential candidate one agrees more. I think I got 79% Romney and 76% Obama. Would have been hard to make a decision either way.

    • I feel like the opposite is true: the average american loves the easy to understand, bias confirming pseudo intellectuals who validate their opinions. Basically the Tea Party monetary policy platform confirms this.

      Economists charlatans because they all incorporate terrible psychology into their models.

      • Is the love of the easy to understand, bias affirming pseudo intellectuals who validate pre-formed opinions due to the fact that Americans in general have gotten to be lazy thinkers, or can it be that our way of life has gotten so complex that people seek solace among those who seem to have ANY logical explanation?

    • Bill, I thought the same thing when I read that part. What’s interesting is that can see it unfolded with in the confounds of economic groups like here and other economic blog sites.

      It seems as more folks come together to understand a subject, a sort of collective group think begins to creep in and then there is this sort of piety that starts to over take members of the group.
      For the sake of topic relevance I will coin the term “Monetarious Pious”:) It seems to rear it’s head in a greater magnitude when groups go from a Descriptive phase to a Prescriptive.
      That’s when all the political weaponry of cliche’s seem to be unleashed.

  9. I’ve never considered them charlatans. More like political hacks, ignoramuses, pseudo-intellectuals, onanists (wow, Word didn’t even recognize that one), narcissists, and Pecksniffian jerks.

    Maybe I’m jaded by a coworker of mine who has several degrees in economics. He worked for a few years as an economist for the feds, before he gave up that career because of “stifling bureaucracy”. Now he’s a salesman.

    He threw a fit after looking at his 401k balance after the 2008 crash, and set out to find “whoever ended up with all my money”. I tried several times to explain to him that nobody ended up with it. The equity just vaporized. I still don’t think he gets it.

  10. The biggest problem with ALL economic schools is that they ignore human reactions and the other social sciences, especially including politics and the existence of vested interests.

  11. Economic forecasting is as difficult as weather forecasting and is therefore viewed with equal skepticism…those practicing the trade are viewed in the same light.

    Predicting how macro tools affect individual and collective human behavior outside of systemic shock events is beyond our current capabilities.

    Once the world government inserts a nanochip into every human and gathers transaction data real time will the accuracy improve…or perhaps there exists an economist with the same faith earned by Gregory Rasputin and we know the fate of Tsar Nicholas II and his family.

  12. This is the best comment about economic science I’ve read recently and it’s from one of the few really good economists around…

    “Economics, as a discipline, is a paradox wrapped up in a contradiction. The more irrelevant its models the greater the profession’s discursive success and, thus, social power. From the 1970s onwards, economics departments were taken over by a particularly narrow-minded quest for ‘solved’ mathematical models of the economy – including of finance. But to ‘solve’ our mathematical models, economists had to impose (often without stating) hidden assumptions which guaranteed that these models had nothing whatsoever to do with really existing capitalism. Yet, these very mathematical models could be used by financiers and politicians to provide a veneer of respectability to their policies and derivative trades (since the models effectively assumed, in order to be solved, that financialised capitalism is immune to crises). Thus economists were popular (and well rewarded by the financial sector and neoliberal governments) for having produced models that were, by design, irrelevant. This is why I refer to economics as a major contradiction; a most peculiar failure: It is the only discipline whose power is proportional to its theoretical failure to illuminate capitalism. And yes, it is a priesthood of sorts, in the sense that young graduates do well in the economics profession if they learn how to set up and solve these mathematical models ritualistically, accepting in the process that they will never have anything useful to say about the real world…”

    from an interview to YANIS VAROUFAKIS


  13. When someone mentions he’s belongs to Austrian school of economics when we talk about economics, it’s like someone mentions he’s astrologist when we talk about astrophysics.
    That theory, “methodology” is complete and utter nonsense, it’s tragic that they get so much media space. At least no one seriously asks astrologists opinions when talking about black holes, but we get to see Austrians all the time when talking about macro economics.

  14. Quote from CR:

    “Hell, I don’t even get involved in policy ideas directly via MR so you could say that MR just totally ignores policy and actually fixing the problems. That’s a huge problem. I know that.”

    That’s one of the 2 reasons because I’m reading your blog. Your descriptions of the monetary system can be quite correct because despite the complexity, is a closed system, a merely technical one, orders of magnitude simpler than the economy (which means the human behaviour and the interactions between men and with the planet). If you start trying to explain the economy you will end up like the others that are trying to model an impossible to compute system with faulty math and limited scope reasoning without mentioning externalities because “they don’t fit the model”. So continue along your path, being limited is being wise. Daniel Kanheman did a better job in describing economy than all the economists of the last 100 years.