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by Adrian Sobers
“Models can be physical, mental, mathematical or computational, and they are by nature metaphorical.” – (Erica Thompson)
“But to what will I compare this generation?” – (Matthew 11:16)
In his review of Erica Thompson’s Escape From Model Land, David A. Shaywitz writes, “Economists’ esoteric but inherently faulty models easily dupe most people who are STEM illiterate.
The main purpose of the Fed and its economists is to shield politicians from the consequences of their policy errors, most recently their egregious $4.1 trillion spending blowout igniting runaway inflation.”
Mr. Shayitwz’s analysis doubles as an accurate assessment of how the global economy got here, namely, muddleheaded, mathematical, macroeconomic models; all made worse by people clinging to popular level factors (“greed”) that do not have sufficient explanatory power in the context of the global, historic macroeconomic policy blunder, of which consumers are still feeling the brunt.
Shayitwz’s analysis also alludes to an oft-neglected point that Ms. Thompson speaks to throughout her book: accountability. Our political and monetary masters have not only pulled off the heist of the century, they have also conveniently absolved themselves of any and all responsibility of the aforementioned state-sponsored inflation.
A cartoon in the Jamaica Observer is as close to a commentary as I have seen this side of the world that alludes to the root cause.
The Governor of the Bank of Jamaica is holding a club, aptly labelled Feverish Rate Hikes, and is threatening to hit the commercial banks who have the consumer dangling upside down by one leg.
The commercial banker, threatening to drop the consumer, says to the Governor, “If you hit me [with a rate hike] one more time [I’m dropping them]”.
This cartoon should be framed and referenced anytime we hear the nonsensical popular level greedy businesses narrative being trotted out. Historic inflation highs and the related economic problems it brought are rooted in the quantitative easing blunder and run much deeper than “greed”. If we are serious about easing our economic woes, there is no better place to start than escaping Model Land.
Ms. Thompson takes us on a tour of Model Land, and although not a completely useless place, she offers a much needed escape plan. She references Nassim Taleb’s ideas at various points and now is a good time to repeat one of my favourite warnings from Taleb, “Much of what is taught in economics that has an
equation, as well as econometrics, should be immediately ditched.” It seems abstract, but we are literally paying through their teeth for ignoring it.
Messiah’s question is also worth repeating, “But to what will I compare this generation?” To one that prides itself on, well, pride. Although we rely on analytical rigour in Model Land, we cannot escape concepts like humility and accountability; for the simple reason that we cannot escape what it means to be human. The best feature of Ms. Thompson’s book is that it puts humanity front and centre.
That she brings accountability to the forefront is alone is worth the price of admission. In the economic context, it is not so much “greed” but pride in and a slavish reliance on models which have contributed the most to the historic monetary policy blunder of the Federal Reserve and other central banks.
Don’t ever forget that (and the fact that inflation is a monetary phenomenon; period).
Thompson writes, “In model-informed decision-making there can often be this kind of accountability gap”, and cites Paul Pfleiderer who compares models to “chameleons behind which accountability is lost.”
Amen! As she says later on, “It’s no use for experts to make recommendations in Model Land, because that’s not where the rest of us live.” (Read that again.) This is evidenced by numerous cries in videos and social media posts from persons in “advanced” economies speaking to Reality. A TikToker from Canada said: “Don’t move here, we haven’t had wage increases since 2000, we can’t afford anything.”
There are several similar posts from people in Reality who counter the recent Model Land propaganda that inflation hasn’t been “that bad” of late.
The most touching video came from a British worker being interviewed. She was close to tears and said she’s had to reduce the number of meals from three to one for her family.
Therefore, when your monetary/political masters say inflation is “two per cent” or “quite moderate for the last six months”, and your reality says otherwise, you can safely bet the rent that your reality is more accurate than their muddleheaded mathematical macroeconomic models (and their definition of inflation and use of the Consumer Price Index).
Consumers don’t live in Model Land, but we literally pay the price for those who do.
Things will improve if and only if the inhabitants of Model Land are held accountable. This is where the electorate (and judiciary) should come in.
Consumers would do well to keep Thompson’s question before them in 2023: “If economic models fail to encompass even the possibility of a financial crisis, is nobody responsible for it?
Who will put their name to modelled projections?”
If there is any intellectual honesty (or basic decency) left, these questions would be answered. For the sake of your hopes and dreams (not to mention your savings and investment accounts), I hope this is the year we transition from Myth – muddleheaded macroeconomic models – to Reality. You do remember Reality don’t you? That no-nonsense place where Messiah still speaks.
“But to what will I compare this generation?” To one that is “always being instructed and can never arrive at a knowledge of the truth” (2 Timothy 3:7).
Happy Near Year (and even happier reading).
Ms. Thompson’s book is a good place to start, not only the year, but our long overdue economic Exodus from Model Land. More adventurous readers can pair it with Arkadiusz Sieroń’s Monetary Policy after the Great Recession. Here we go, again.
Adrian Sobers is a prolific letter writer and commentator on social issues. This column was offered as a Letter to the Editor.
