No economic “model” has ever been any different, from the similarly-arrived-at “models” degenerate and clueless roulette player employ to guide their future bets. No “model” could be, even on the off-chance that those who devised it were literate and intelligent. Which, of course, noone stupid enough to not understand this, will ever be.
The fact that models work in physics, and physicists are smart, simply does not mean mindlessly aping physicists in a completely different arena, will somehow make you “smart” as well. Not at the roulette table. Not when dealing with economic actors. In fact, all that doing so does, is underscore how blatantly and obviously _not_ smart you are.
“Models” work in physics, only because the subjects of study are assumed to be static, or at a minimum to change in predictable ways. That kind of works for atoms. And planets. And pressure waves etc…
But it specifically does not work, when your study subjects, are rationally optimizing individuals with free wills. Once they are, then whatever action you take, or are expected to take, or that others are expected to take, on the basis of what your model predicts, is anticipated. Then gamed for maximum gain, by each and every one of your supposedly static subjects. Then, each of them will try to anticipate, and game, what they think others will do as a result of becoming aware of your “study.” And so forth and so forth, until none of them any longer behave even remotely like they did prior to your study’s findings. Hence, your model no longer works. http://every.single.time.Whithout.a.Single.Exception.Whatsoever.In.All.Of.The.Uiverse’s.History.
Only the truly unintelligent, illiterate, incompetent and severely logically challenged, does not realize this intuitively. Believing rational self optimizers will somehow NOT take the “findings” of your childish “studies” into considerations when making future plans, hence gaming them and rendering them no longer accurate, is so naive that I’d be shocked if a 5 year old made such an easily and obviously identifiable mistake. For supposedly grown people to do so, over and over again, is simply mind boggling. And really says all there is to be said about the childbrain fest attempted passed off as “economics” these days.
Treepower
2 years ago
The appointment of Janet Yellen as Treasury Secretary in a quasi-marxist administration tells you all you need to know. These ‘neutral academics’ are nothing of the sort, they are political activists who have usurped institutional power, for whom it is easy to use bogus models and theories as convenient academic fig-leaves for blatantly political policy choices. Mish, they don’t believe in those models any more than you do, but they certainly know how to use them as a smokescreen for their leftist activism.
JeffD
2 years ago
The Medical CPI component is a complete joke. For a two person household making $65K/yr where I live, unsubsidized insurance premiums are $12000/yr minimum, assuming neither person has any medical/pharmaceutical needs, whatsoever.
GaiaMoney
2 years ago
As alwyas a very impressive inflation analysis. To dig for some theoretical laughs at the Fed’s modelling try this new article by Blair Fix: “The Truth About Inflation – Inflation is always and everywhere a phenomenon of structural change” link to gaiageld.com
Jojo
2 years ago
Let me share the FED’s considered response:
“Thanks for sharing”.
Eddie_T
2 years ago
I do take issue with the idea that real inflation was ever lower than 2% for very long. , CPI, yes. Real inflation, no.
I think inflation is always understated in central bank models…and real inflation now is higher by that amount, too, than reported CPI-U. If unadjusted CPI-U for October was reported at 6%…..then I think it’s safe to guess a real number might be north of 7.5%
If we have a crash in RE and equities, I’d expect inflation to dip below zero until markets found a new bottom….but imho it’s a fairly safe bet to invest long term in tangible assets…..expecting inflation to be a given over time…..at least in the particular asset classes I care to own for investments.
Call_Me
2 years ago
The fed’s bevy of models does not exist to help enlighten. There are many drones toiling away at the various fed locations and they need to produce something. Crank out models, write about their development/modification, and write about their output – work for the sake of work!
The quality of the data generated can always be explained away by temperatures that are too warm/cool, ‘unpredictable’ politicians, or some other way in which the real world failed the model. In short, it’s someone else’s fault.
Mish
2 years ago
i am struggling greatly with my key computer. posting from backup. lots of news today i cannot get to but have a pre-written post coming up shortly
Maximus_Minimus
2 years ago
The CPI divergence from reality is one of the basis of my view that the world is run by incorrigible clowns, those who believe in their own bullsh*t.
RonJ
2 years ago
What will inflation expectations be in a WEF “you will own nothing and be happy” world?
AWC
2 years ago
The Central Planners can remain irrational longer than you can remain solvent.
We can play the game, or break with the “Oracles” that “Know” more than all the worlds markets, and all the worlds market players.
Do y’all feel lucky in gamesmanship?
That said, now, what might be the best conduit to get us to the “Other Side?” An item that has endured, and will outlive all oracles from Nostradamus through Jay Powell? And yes, will most certainly outlast Potato Head?
Tony Bennett
2 years ago
“Fed presidents continue to believe their own academic training on the model, proven not to work in practice.”
…
ALL IN on Greenspan’s “wealth effect” … they’ll use any excuse to jam markets higher. Bernanke in a moment of truthiness:
“higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”
too bad the top 10% own 90% of equities … leaving the bottom 90% with the scourge of inflation.
Tony Bennett
2 years ago
“The intellectually lazy central banker relies on models that explain a world of unknown unknowns with known knowns.”
…
I despise their arrogance. Back in the day I called it the “Rumsfeld Defense”. When OIF started Rumsfeld’s daily pressers were televised. At the podium he was so cocksure. In his view prosecution of war in any other way than conducted would have led to worse outcome. No matter the blatant FUBAR apparent to anyone who had not swallowed the yellow ribbon potion.
Tony Bennett
2 years ago
in March of 2017, Janet Yellen commented the “Phillips Curve is Alive“.
…
2017 was a banner year for ole Janet:
“Would I say there will never, ever be another financial crisis?” Yellen said at a question-and-answer event in London.
“You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be,” she said.
“Would I say there will never, ever be another financial crisis?” Yellen said at a question-and-answer event in London.
“You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be,” she said.