Why economists are part of the problem



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I dislike economists; not personally, but for being ill-equipped to do their job. Despite boasting impressive academic credentials, they lack any understanding of the real world. The problem isn't only that, like weathermen, the economic community is often incorrect. The problem is that our politicians seek and follow their guidance.Though I do enjoy it, I don't bash economists for sport. Rather, I think it's important that we recognize the need to change the way we approach economics. Until we do, we need to stop seeking guidance from economists.For additional background, go to my website and read "The Errant Economist" and watch the video entitled, "Economist Discovers Fire." Afterward, you'll understand better why we should put as much credence in the economic community as we do in the nightly weather forecast.Nobel Prize winner and New York Times columnist Paul Krugman serves as a constant reminder of what ails professional economists. Recently he wrote another birdcage liner column titled "Earth to Ben Bernanke."In his column, Krugman takes Mr. Bernanke to task for not doing enough to return the economy to normalcy. Despite being an academic himself, Federal Reserve Chair Bernanke has done a laudable job in navigating through murky economic waters. But that isn't my issue with Mr. Krugman's latest blathering.Rather it's that a) Krugman -- like most economists -- believes that economists can actually fix stuff, and b) his primary recommendation completely contradicts his stated objective. This latter point illustrates, Nobel Prize notwithstanding, that Krugman is -- how can I put this diplomatically? -- an idiot.Higher inflation?Let me summarize Mr. Krugman's almost 3,000-word pontification. In the third paragraph he writes ... "while the Fed went to great lengths to rescue the financial system, it has done far less to rescue workers."Fair enough. Many people, including myself, feel Main Street has been on the short end. Fed and government policy are invariably directed to help the "corporate one percent" while ignoring the true engine of the economy: small businesses. But that's a subject for another day.I'll ignore Krugman's absurd observation that "the U.S. economy remains deeply depressed, with long-term unemployment in particular still disastrously high ..."The economy is far from deeply depressed. In fact, if not for Europe, 2012 might be a decent year. And it's hard to defend the position that 8 percent unemployment is disastrously high. Unemployment during the Great Depression was 25 percent and Spain and Greece currently have unemployment rates over 20 percent. That's disastrously high.So much for ignoring Krugman's observation. But I digress, so let me get to the punch line.After tediously reviewing the Fed's actions, and basically accusing Mr. Bernanke of "changing his stripes" because of political pressure, Mr. Krugman advocates that the Fed should increase its inflation target from 2 percent to 4 percent.Brilliant!In Mr. Krugman's mind, that would spur investment because who would let cash sit idle while it loses 4 percent of its value?Let me take a stab at answering that one: Anyone who thinks that investing in stocks may cause greater losses and any business that doesn't see sufficient demand to invest in new capital equipment. Note that despite periodically yielding rates below the inflation rate, demand for Treasuries has remained robust. Can you say capital preservation?But that isn't the biggest flaw in Mr. Krugman's recommendation. It's that a higher inflation rate would inflict the greatest harm on the very people he professes to care about most: Main Street. I guess he missed that class in Ph.D. school.Author, professor, entrepreneur, radio and TV commentator, Tony Paradiso of Wilton is a marketing, management and macroeconomic expert. His website is tonyparadiso.com. Edit ModuleShow Tags