Quote of the Week

There has been a fair amount of reaction this week to Harvard economist Greg Mankiw's most recent monthly column in the New York Times, in which he essentially admitted that he didn't know what to make of the U.S. economy at present. It's rare to see any academic (or professional in any field) concede defeat, but Mankiw (whom I had as a professor as an undergraduate, and whose work I have featured here once before) did so in a humble, eloquent manner that I salute.

This week's QUOTE OF THE WEEK

"After more than a quarter-century as a professional economist, I have a confession to make: There is a lot I don’t know about the economy. Indeed, the area of economics where I have devoted most of my energy and attention — the ups and downs of the business cycle — is where I find myself most often confronting important questions without obvious answers."
              - Greg Mankiw, Harvard economics professor

Mankiw goes on to issue a fairly stern (and level-headed) criticism of the culture of punditry in America, one that continues to be fed by our 24-hour news cycle that requires and spews out "analysis" at all times, regardless of its basis in fact. He writes:

By its nature, punditry craves attention, which is easier to attract with certainties than with equivocation. But that certitude reflects bravado more often than true knowledge.

Well said. Plus bonus points for using big words.
 
I, for one, work in an industry that craves analysis, opinion, and prediction. Everyone wants to know where the market is heading next, even though nobody really knows. The best any of us can do is give a range of probabilities and outcomes, and position ourselves favorably for all potential outcomes. But that type of approach doesn't sell many books (or attract many investors). Neither does earning a slow, steady 6-7% per year into perpetuity.

No, the managers and economists who grab the headlines are the ones who make huge bets, put all their eggs in one basket, and are eventually lucky enough to see it pay off. They certainly are fairly quiet about revisiting their predictions when they fail (and they most often do), but they receive huge accolades when they happen to be right. John Paulson, who predicted and profited from the bursting of the housing bubble, knows this dynamic well. But he was wrong for a long time before he finally became right. Insert "stopped clock is right twice a day" wisecrack here.

Either way, I think it's refreshing to see a pundit take a step back and admit weakness and confusion. Every once in a while, we'd all benefit from some humility.

[New York Times]