Would someone please teach Nouriel Roubini some manners? The New York University economics professor has become the Jeremiah of the Dismal Science.
Economist Stephen Mihm (published at http://www.alternet.org/module/printversion/95375) describes a speech Roubini gave in 2006 before the IMF where he predicted that, “In the coming months and years…the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession.”
The reason the speech was such a display of bad manners is that Roubini was right!
According to Mihm, a well-mannered economist “builds a model in order to constrain his subjective impressions and abide by a discrete set of data.” This is why famine, plagues and corporate ineptitude are never factored in.
A polite economist is one who constructs a model proving the ship he is on is unsinkable even as the water sloshes around his ankles. “Slosh” is a subjective judgment that has no place in his model.
Roubini’s sin is including subjective impressions in his models.
What Roubini fails to understand is the well-mannered economist is a cheerleader. He never screams, “A tsunami’s coming! Rather, he yells, “Surf’s up!”
According to Mihm, Roubini believes optimism is built into economic models because of “the very machinery, the mathematics of modern economic theory. Economic models typically rely on the assumption that the near future is likely to be similar to the recent past, and thus it is rare that models anticipate breaks in the economy.”
In other words, if the silo was full of grain last week, it will be full of grain today, even though the rats are eating the grain the thieves left behind.
The role of the economist is to construct a schematic made up of arcane mathematical calculations. The economist then assumes that the schematic and reality are one in the same. In this, the economist is like the man with a broken television who unfolds a schematic of the set and convinces himself that by drawing a line from Point A to Point B he can make the set work again. If it doesn’t, it simply means he should have drawn the line from Point C to Point D. The only difference between the two is that the television can’t be scammed; people can.
Economics isn’t the Dismal Science; it’s the Dismal Theology. The polite economist must never forget the motto of the Bush administration: “What you say is; what you don’t say isn’t.
Sure there’s some toxic paper out there. The Bank of International Settlements (BIS) (published at http://www.goldonomic.com/cdo_subprime.htm) estimates that there’s a 1.144 quadrillion roll of toilet paper working its way through the system. (A quadrillion is 10 to the fifteenth power, or a one with fifteen zeroes following it.)
Is that any excuse for Roubini to go dour on us?
You gotta believe