Sunday, February 6, 2011

To The Queen of Hearts: Clueless

In a reply to Prof Rajan one of the left wing economists states:

Spot commodity prices can’t be forecast (EMH.)  Spot commodity prices are highly correlated with the business cycle.  Ergo, the business cycle cannot be forecast. .... Rajan’s second point is exactly right.  The other two are completely irrelevant.  Someone please tell the Queen.

My father used to ask me when I arrived home late from a date on a Friday night when I was in secondary school, after some presenting him with some lame explanation: "What does the price of tea in China have to do with (my lame excuse)?"

This logic is worse than anything I could have attempted when a young teenager. We are not talking about the business cycle, we are talking about a profession which has no idea about which they preach. Commodity prices are somewhat predictable, look at the old hog and corn cycle, one can watch leading indicators knowing what the inputs are to the process and then examining the demand equations which one also knows, then one can get a reasonable projection. Traders do that all the time, oil, metals, goods in general.

The observation that one should make here is that the totally unregulated hedge funds prospered! According to the anti-free market types like the above economists they should have collapsed. They did not. What did collapse were those with the Government at the hand of the tiller such as housing and sales to people who had no way of paying back.

The issue still stands, macro economists are apparently clueless when it comes to the economy. They are a bunch of political preachers who hide their political philosophy in a wad of equations. The problem is I wrote that book some 40-45 years ago. There are times I fell like Patton, looking at Rommel and saying, "I read your book!", but in my case I wrote the book. As such I know all too deeply its failings.