A Study on Crony Capitalism: How the Geithner Connection boosted Wall Street Stocks

Interesting study from distinguished mainstream economists.

From the Wall Street Journal Real Times Economic Blog

Want to boost your stock prices during a financial crisis? Build ties to the next Treasury secretary.

A research paper published by the National Bureau of Economic Research finds that investors bid up shares of a handful of financial firms after news leaked that Timothy Geithner would be nominated for the top post at Treasury in 2008.

“This return was about 6% after the first full day of trading and about 12% after 10 trading days,” Massachusetts Institute of Technology economists Daron Acemoglu and Simon Johnson, University of California at Berkley economist Amir Kermani,University of Connecticut professorJames Kwak and Brigham Young University professor Todd Mittonwrote.

The reason for outperforming shares was a unique set of circumstances — the financial crisis — coupled with the revolving door between Wall Street and Washington that investors expected would bring officials to Mr. Geithner’s side, the authors write.

“Excess returns for being connected to Geithner reflect the market’s expectation that, during a period of turbulence and unusually high policy discretion, the new Treasury secretary would need to rely on a core group of employees and a small social network for real-time advice — and that these employees were likely to be hired from financial institutions with which Geithner had connections,” the authors surmise.

Click on this link to the paper

I have noted in July 2012 how the New York Fed bragged about the influence of their policy in pushing up US Stocks, the GAO audit which found the Fed’s largesse of $16 trillion in bailouts have benefited Wall Street and foreign banks during the 2007-8 crisis and lately how QE 3.0 continues to bailout foreign banks (by $1 trillion in cash as of April 2013—according to the Zero Hedge)

In the meantime, former Treasury Secretary Tim Geithner today has been reported to have taken a job in one of Wall Street’s companies. The regulator is now the regulated. This is an example of the Wall Street-US government revolving door phenomenon in action.

The above serves as more proof of legalized insider trading by means of unilateral policies designed to boost the interest of special groups with deep political connections at the expense of society.

Let  us not forget that the US government’s vast tentacles influences mainstream ‘expert’ opinion indirectly via job contracts and career opportunities.

In terms of the US Federal Reserve’s clout, according to a Huffington Post article in 2008 (bold mine)

The Federal Reserve's Board of Governors employs 220 PhD economists and a host of researchers and support staff, according to a Fed spokeswoman. The 12 regional banks employ scores more. (HuffPost placed calls to them but was unable to get exact numbers.) The Fed also doles out millions of dollars in contracts to economists for consulting assignments, papers, presentations, workshops, and that plum gig known as a "visiting scholarship." A Fed spokeswoman says that exact figures for the number of economists contracted with weren't available. But, she says, the Federal Reserve spent $389.2 million in 2008 on "monetary and economic policy," money spent on analysis, research, data gathering, and studies on market structure; $433 million is budgeted for 2009.

That's a lot of money for a relatively small number of economists. According to the American Economic Association, a total of only 487 economists list "monetary policy, central banking, and the supply of money and credit," as either their primary or secondary specialty; 310 list "money and interest rates"; and 244 list "macroeconomic policy formation [and] aspects of public finance and general policy." The National Association of Business Economists tells HuffPost that 611 of its roughly 2,400 members are part of their "Financial Roundtable," the closest way they can approximate a focus on monetary policy and central banking…

The Fed keeps many of the influential editors of prominent academic journals on its payroll. It is common for a journal editor to review submissions dealing with Fed policy while also taking the bank's money. A HuffPost review of seven top journals found that 84 of the 190 editorial board members were affiliated with the Federal Reserve in one way or another.

In short, the Wall Street-US Government ties run deep and have not been limited to revolving door political relationships, but likewise in the realm of dissemination of information.

Politics 101: Democracy

Democratic politics isn’t really about equal opportunity to express people’s opinion. Instead it is about the manipulation of the masses by vested interest groups to legitimize power grab.

Austrian economist Bob Wenzel lucidly explains the basics of democratic politics which you won’t hear or read from the mainstream institutions. (bold emphasis mine)

The late mafia leader John Gotti, who understood a thing or two about men, once told his daughter: "Regardless of how much a man tells you about how smart you are, he really has only one thing on his mind. You may see a certain man and think of him as grandfatherly, just remember, he has only one thing on his mind."

There is an analogous situation in the world of politics, no matter how much a politician tells you how he wants to fight for your cause, keep in mind that he has only one thing on his mind: getting or maintaining power.

No matter how well groomed or smooth he looks, no matter how well he delivers his lines, he has only one thing on his mind: getting or maintaining power.

In a democracy, in a two man race, a politician must be concerned with the percentage 50% plus one vote.(In a three man race, it's 33% plus one vote, but to keep things simple I will assume a two man race. In a three man race or more, the general idea is the same, just different percentages.) . To be a successful politician, a politician must look at each and every voter and determine whether that person is going to bring him closer to 50% plus one, and how much closer.

In other words, you as an individual voter are not very important to him. Think, I'm kidding? Try getting an appointment with one of your U.S. senators to discuss some tax loophole you would like for yourself, so that instead of sending 25% of your money to the IRS, you get to use the money on a three month per year trip to the Bahamas, which you then are able to deduct from your tax bill. Go ahead, call your senator now and try and get this done.

If you understand politician math and the importance of 50% plus one vote to a politician, you will understand that individuals, who represent large groups of voters, can get appointments with senators. A Citibank lobbyist, and other bankster lobbyists, are also going to be able to get meetings with senators. They bring money that the politician can use in his campaign that will help him advance toward 50% plus one vote. That's why banksters get tax loopholes and you don't…

Bottom line, it makes no sense for an individual to vote, endorse, or work for any politician, especially if you are a libertarian. Democracies are about power players and divvying up the lucre and power. If on the other hand you some how can deliver a vote of 10% or more because you have a following, you may be able to make a marginal incremental influence in favor of liberty. You won't get much, especially when you will be vying against other power players, who want to grab and take and steal and expand government power, but on a practical level, the mathematics work in that you may be able to get something.

Oh, this isn’t just in the US, but applies universally including in the Philippines.

And here is why politics is not only an utter waste of time but represents a destructive force in society…

Democracy, despite the reverence and lip service placed on "one man one vote", is really about power blocks, get out the vote machines and the power players who control the blocks, machines and money. It has nothing to do with the individual.

The individual is only served away from government. The only chance an individual has to get his unique quirk's met is not from government, where a quirk could never possibly result in a power block to influence government, but in the private property free market society where businessmen are out to serve all--not just the power crazed..

In comparison, unless you are super wealthy, or have a power bloc you can deliver, politics is a waste of time. This is even more the case for the libertarian, since politics is, in the end, mostly the fine art of delivering for the power players by destroying liberty, while talking gibberish about serving the people.

If you buy into the gibberish, you are a sucker.

You are much better off studying about freedom, practicing freedom and writing about freedom, than you are joining and working a political campaign for what ultimately must become a liberty destroying outcome.

I’d rather go on a vacation during election period than be a part of the delusional “one man, one vote” egalitarian society (myth of the rational voter)

Oh by the way, speaking of “one man one vote system”, I recall that there had been more NON-voters during the last or 2010 Philippine presidential election than the votes acquired by the winning candidate, today’s incumbent president. Yet mainstream institutions continually impress upon the public that plurality votes equates to the “madlang people” or to the collective.

Yes politics, abetted by media, have demeaned culture to the point of mangling linguistic content in order to peddle crass collectivism (of course to the benefit of the political class and also of crony media)

Politics indeed is a game of lies and machinations.

Knowledge Acquisition: The Importance of Information Sourcing and Quality

“The Pen Is Mightier Than The Sword”- coined by Edward Bulwer-Lytton English author, (also attributed to Dr. Jose P. Rizal)

Any serious or prudent investors in the financial markets would normally try to look for ways to improve on one’s returns. That’s if one recognizes what is workable and what isn’t. Thus, the main task of prudent investors in the financial markets is to screen information and theories and test them, and apply those that would seem as the most cogent, accordingly.

But again this isn’t true for many as returns might seem as a secondary importance. That’s because these economic agents obstinately adhere to biased or selectively chosen data (selective perception) which they interpret as applying to the whole (fallacy of composition), fixate on what is current (survivalship bias) while ignoring the rest, apply misleading definitions and embrace self contradictory and inconsistent theories.

I am just repeating what I said before. Sometimes it takes a deluge of information before the message sinks in.

Ignorance versus foolishness

Ignorance is one thing, foolishness is another. People who fail based on ignorance could be looked upon with compassion. They perhaps hardly knew of the consequences of their actions, which were most likely guided by wrong quality or sources of information.

But it’s different when people lose despite being informed or forewarned. This may be called as doggedness or practising financial religion.

For instance, when people refuse to heed of the inherent risks of conflict of interests that may arise among interacting agents[1], they are likely to fall into the Agency problem trap. Information embellished with statistics and presented as facts could mislead investors. It’s clearly an intangible or unseen risk, that’s because investors are likely to be unaware of the underlying incentives behind these presentations, which may shape or influence the way we think and how we allocate our resources.

And for non-exclusive reasons, boom-bust cycle happens because of information too. Credit fuels greed which impels people to look for information that would confirm on their preconceived notions. Bias, thereby, seeks information or analysis which performs the way dopamine functions, to serve the pleasure centers. So like drugs, misleading information will always have a market.

Also, in as much as price distortions from government policies affect the way people think, these are likewise exhibited through literatures. That’s because the mainstream usually focuses on the symptoms which are read as the cause and transmitted to the public as valid information or facts. This is also because mainstream information caters to short term orientation. In short, boom bust cycles occur also when people gorge on too much of false information.

Stakeholder’s Problem, If Birds Can Write

Most have been unwittingly seduced to the oversimplification of reading current events into market prices, for the reason that being wrong may have little consequence to them. In short, it’s usually a stakeholder’s dilemma or stakeholder’s problem[2]—where the incentives to secure knowledge are driven by the degree of stakeholdings.

Take for instance, a person who dabbles with the stock market, as sideline or for entertainment, will likely have a lesser intensity of incentives to acquire knowledge relative to an individual who lives by the stock market. The latter’s perceived risk factor is greater than the former who has other lines of revenues.

The varying situational incentives, thus, become crucial factors in determining knowledge acquisition.

Yet luck also plays a crucial role. Because no matter how wrong one’s ideas can be, for as long as such errors are made on the side of the general trend where the market is headed, market trends eventually remedies on such errors. And as a result, false ideas could lead to a self-attribution or self serving bias which according to Wikipedia.org[3], people attribute their successes to internal or personal factors but attribute their failures to situational factors beyond their control.

And this also applies even in academics, where wrong models can be seen as “workable”.

Prodigious author of the bestselling book, the Black Swan, Mr. Nassim Taleb writes of a marvellous example of in his forthcoming book[4],

Think of the following event. A collection of priestly persons from Harvard or some such place lecture birds how to fly. The bird flies. They write books, articles, and reports that in fact the bird has obeyed them, an impeccable causal link. They even believe their own theories. Birds write no such books, conceivably because they are birds, so we never get their side of the story. Meanwhile, the priests broadcast theirs.

Behind Media’s Altruisms And Biased Information

And as stated above, the quality and source of information matters.

The most likely source of information are usually the popular ones, such as mainstream media. They cater too our brain’s desire to get fed with visible, emotional, sensational, shocking or graphic linkages.

Take for instance, in the event of a disaster, media routinely appeals to the public to ask for donations. They appeal to the emotions by advocating charity work for the unfortunate victims. Media outfits create an aura where they are seen as doing purely social work. They become instantaneous heroes especially when celebrities lead them.

But this is only half true, what’s not seen is that by connecting to the public’s emotions and wallets they increase viewership on their medium. And the key to their revenues—advertisement—largely depends on the number of audiences. So media’s missives have almost always been attuned towards winning the public’s viewership. It’s like politics in a private format.

Thus for media, intention can be interpreted two ways, social work to help the community or self interests camouflaged by altruism.

In covering political philosophy, this is the same manner why socialism sells, it appeals to emotional center of the brain but are bereft of how “intentions” parlay into reality.

In terms of investment, it’s also the been same. Most people are continually deceived by information aired or disseminated by the media and their cohorts of experts, which for most instances have little value or are irrelevant.

As Rolf Dobelli writes[5],

Out of the approximately 10,000 news stories you have read in the last 12 months, name one that – because you consumed it – allowed you to make a better decision about a serious matter affecting your life, your career, your business – compared to what you would have known if you hadn’t swallowed that morsel of news.

The point is: the consumption of news is irrelevant to the forces that really matter in your life. At its best, it is entertaining, but it is still irrelevant.

Bottom line: information is vital to one’s decision making process, whether applied to the financial markets or in many other vital aspects of life.

The beauty of today’s technological advances is that information is not restricted or centralized but operates from a free market competitive environment.

And I am just part of the multitude of lowly voices here in the cyberspace trying to speak out what I see as true.

And unknown to most, revolutions begins with ideas.

---

[1] See Dealing With Financial Market Information, February 27, 2010

[2] See Philippine Elections: Why I Will Vote For President "None Of The Above”, May 5, 2010

[3] Wikipedia.org, Self-serving bias

[4] Taleb, Nassim Nicolas, Birds Do Not Write Books on Birds, Chapter 8, Anti Fragility

[5] Dobelli Rolf Avoid News, Towards a Healthy News Diet Dobelli.com (hat tip Bryan Caplan)

How Bro. Armin Luisitro’s 12 Year Basic Education Cycle Will Benefit The Big League Schools

The proposal of De La Salle Bro Armin Luistro, the incumbent education secretary, to extend the basic education cycle into 12 year cycle isn’t likely achieve the purported goals. [Sorry, but I have to part ways with my alma mater, assuming DLSU adheres to Bro. Luistro’s stand].

According to the Inquirer.net,

“The current thinking is if you don’t finish with a college degree, there is something missing. But in basic education, the operative term is basic, and what is basic is that they should be able to live a meaningful life, be prepared to start a family, be productively employed,” Luistro said.”

Will an additional 2 years of education guarantee that students will become productively employed? The answer is NO. Instead, what such policy will guarantee is that schools, particularly the elite schools, will be assured of additional revenues.

Yet, isn’t 10 years enough to instill basics?

Table From Alabama Cooperative Extension: What Are Employability Skills?

Many of the employable skills are actually self-learned from actual occupational experiences than from a classroom setting. This includes high-order thinking skills and personal qualities in that come in relation with people relations management.

Adding practical skills to the curriculum will not likely enhance for the simple reason that the students won’t get the desired experience of real work pressures until they get formally employed. Employers will unlikely put pressure on people whom are not committed to them. For instance, at On the Job Training (OJT) with companies, students will merely be given the least sensitive job, and thus, will hardly imbue so-called required skills.

This would be analogous to teaching people how to swim in the swimming pool (controlled setting) when what is needed is how to survive the open seas (variable conditions).

Another example would be competition, you can’t exhaustively teach competitive skills in the classroom or practical class, but from the rigors of the real world.

In addition, Bro. Luisito isn’t dealing with reality but dabbles instead with statistics.

Again from the Inquirer,

``While a large percentage of families could not afford to send their children to college, the current basic education cycle is inadequate in giving students employable skills, Luistro noted.

``Only 16 percent of the student population finish college while 84 percent leave school at different stages, Luistro noted.

Yet, despite this, the Philippines has one of highest educational attainment in Asia that’s according to the ADB’s 2007 Education and structural change in four Asian countries

“Of the four countries studied in this chapter, India is the least educated. Thais are slightly less educated than Indonesians, and Filipinos are the most highly educated. Three of the four countries have aggressively pursued increases in education levels, especially at the secondary level, during the period under consideration. Around 90% of Thai secondary education is privately provided. The corresponding figure is 20% for the Philippines, down from 32% in the mid-1990s, and roughly 40% for India and Indonesia”

You see, the problem isn’t much about employable skills, but about that the lack of investments that spurs the job creation. In short, it’s the lack of jobs.

Let say Bro Luisito can produce many employable skilled workers alright, but absent jobs these employable skilled workers will remain unemployed.

Importantly, I see Bro Luisito protecting the interests of the elites by introducing anti-competitive provisions,

Again from the same inquirer article,

“While not everyone will end up with a degree that is very, very academic, we recognize now more than ever that for nation-building, our high school program should look at [offering] different tracks to be able to address the many needs and gifts of students,” Luistro said, describing this as a “multi-intelligence” approach.

“For instance, certain high schools could specialize in the arts, partner with the Technical Education and Skills Development Authority for technical-vocational courses, or the Philippine Sports Commission to develop a more sports-oriented curriculum.

The new provisions would effectively mandate affiliations with “specialty partners”, thus schools that don’t meet the criteria would be forced out of the playing field. This means that the school big leaguers would be the major beneficiaries from the new law.

Besides where he claims that the new law will “address the many needs and gifts of students” is in contrary to his earlier statement saying that the law will “conform with global standards”. How does uniformity (global standards) harmonize with individuality (many needs and gifts) [unless our children will get transformed into automatons]?

Finally, Bro. Luisito claims that there won’t be added financial burdens.

Of course, he saying this, because he isn’t paying for it. To paraphrase Warren Buffett, this would be like asking a barber if you need a haircut.

Again from the inquirer,

“Luistro dismissed fears that the expanded elementary and high school period in the only country with a 10-year basic education cycle would be a financial burden to parents.”

I have NO direct figures to make a comparison of the inflation of the private primary and secondary school levels.

Table From PIDS: College Fee Structure and Fee Inflation

Nevertheless, the table above from PIDS, gives us some insights on why there have been huge college drop-out rate, as well as, the rate of inflation that encompass private college courses.

Bottom line: in contrast to Bro. Luisitro’s claim, there will be material financial burden to families, be it directly (as above) or indirectly (as below). This will particularly onerous to low income levels.

Graph From The ADB’s Hyun Son Has Inflation Hurt the Poor?

In other words, this would mean additional load for families to sustain the burden of carrying children through additional 2 years of the 12 year basic cycle, which doesn’t guarantee anything but huge revenues for the big league schools.

The other way to say it, is that expect more tuition fee increases for schools to meet such mandates!

Is this the change we’ve been looking for-more politicization of education for the benefit of a few?

Bad Record Of Doom Mongering And Interest Group Politics

Here is Matt Ridley on the dismal track record of doom mongerers (or the pessimism bias). [hat tip Mark Perry] (all bold emphasis mine)

``By then I had begun to notice that this terrible future was not all that bad. In fact every single one of the dooms I had been threatened with had proved either false or exaggerated. The population explosion was slowing down, famine had largely been conquered (except in war-torn tyrannies), India was exporting food, cancer rates were falling not rising (adjusted for age), the Sahel was greening, the climate was warming, oil was abundant, air pollution was falling fast, nuclear disarmament was proceeding apace, forests were thriving, sperm counts had not fallen. And above all, prosperity and freedom were advancing at the expense of poverty and tyranny.

``I began to pay attention and a few years ago I started to research a book on the subject. I was astounded by what I discovered. Global per capita income, corrected for inflation, had trebled in my lifetime, life expectancy had increased by one third, child mortality had fallen by two-thirds, the population growth rate had halved. More people had got out of poverty than in all of human history before. When I was born, 36% of Americans had air conditioning. Today 79% of Americans below the poverty line had air conditioning. The emissions of pollutants from a car were down by 98%. The time you had to work on the average wage to buy an hour of artificial light to read by was down from 8 seconds to half a second.”

The incentives for doom mongering? Apparently “interest Group politics”

Back to Mr. Ridley…

``I now see at firsthand how I avoided hearing any good news when I was young. Where are the pressure groups that have an interest in telling the good news? They do not exist. By contrast, the behemoths of bad news, such as Greenpeace, Friends of the Earth and WWF, spend hundreds of millions of dollars a year and doom is their best fund-raiser. Where is the news media's interest in checking out how pessimists' predictions panned out before? There is none. By my count, Lester Brown has now predicted a turning point in the rise of agricultural yields six times since 1974, and been wrong each time. Paul Ehrlich has been predicting mass starvation and mass cancer for 40 years. He still predicts that `the world is coming to a turning point'.

``Ah, that phrase again. I call it turning-point-itis. It's rarely far from the lips of the prophets of doom. They are convinced that they stand on the hinge of history, the inflexion point where the roller coaster starts to go downhill. But then I began looking back to see what pessimists said in the past and found the phrase, or an equivalent, being used by in every generation. The cause of their pessimism varied - it was often tinged with eugenics in the early twentieth century, for example - but the certainty that their own generation stood upon the fulcrum of the human story was the same.

``I got back to 1830 and still the sentiment was being used. In fact, the poet and historian Thomas Macaulay was already sick of it then: `We cannot absolutely prove that those are in error who tell us that society has reached a turning point, that we have seen our best days. But so said all before us, and with just as much apparent reason.' He continued: `On what principle is it that, when we see nothing but improvement behind us, we are to expect nothing but deterioration before us.'

Let us back this up with some graphs (source google public data)

Ballooning global merchandise trade soaring global GDP per capita

Lengthening of world's life expectancy

Explosion in Mobile Phone Usage

Bottom line: Beware of the false 'politically tainted' messiahs.

Reasons To Distrust Mainstream Economists

Here is why I wouldn't depend or trust (my life) on the opinions and (most especially) the forecasts of the mainstream economists.

(hat tip: Dan Mitchell of Cato.org) Why the miserable track record?

In my opinion here are the reasons:

One, model based prediction.

Most economists deem math models as representative of reality. They think that their models incorporate all the working variables required to represent market's action.

This is false, as Ludwig von Mises argued, ``The problems of prices and costs have been treated also with mathematical methods. There have even been economists who held that the only appropriate method of dealing with economic problems is the mathematical method and who derided the logical economists as "literary" economists."

Two, hostage to past performance and dogmatism.

Given their penchant to view reality as a construct of economic models, they become susceptible to fall for the "past-performances-determine-the-future" trap.

For instance, many have used the circumstances of the Great Depression as parallel paradigm to project the future given today's predicaments. They seem to forget that the Great Depression had been a product of the massive engagements of protectionism worldwide, and various anti-market and anti-foreign bias based policy interventions that have not emerged in the same degree today.

So mainstream protectionists, who impliedly have been 'clamoring' or 'desiring' to see a replication of the Great Depression paradigm, advocate similar mutually destructive policies just to have their convictions validated.

In other words, for such a clique, dogmatism precedes reality.

Unfortunately, the evolving technology based platform from which the world has been transitioning into (information age) has apparently served as major deterrent to the proliferation of such closed door-beggar thy neighbor policies.

In addition, much of the world through emerging markets, which have benefited from recent globalization trends, has been reluctant to jump into the protectionist cockamamie bandwagon.

This great quote attributed to Bertrand Russell encapsulates the surfeit of fallacies and myths seen in the profession,

``What a man believes upon grossly insufficient evidence is an index into his desires - desires of which he himself is often unconscious. If a man is offered a fact which goes against his instincts, he will scrutinize it closely, and unless the evidence is overwhelming, he will refuse to believe it. If, on the other hand, he is offered something which affords a reason for acting in accordance to his instincts, he will accept it even on the slightest evidence. The origin of myths is explained in this way.”

Three, political and vested interests.

The core of mainstream economics have been built around the ideas of John Maynard Keynes from which political institutions have warmly appropriated as their operating creed.

That's because Keynesianism is a proponent for big government, and inflation, in the words of James Buchanan,``The allocative bias toward a larger public sector and the monetary bias toward inflation are both aspects of, and to an extent are contained within, a more comprehensive political bias of Keynesian economics, namely, an “interventionist bias,” which stems directly from the shift in paradigm."

Unfortunately ideas and reality don't square, adds James Buchanan, ``The political process within which the Keynesian norms are to be applied bears little or no resemblance to that which was implicit in Keynes’ basic analysis. The economy is not controlled by the sages of Harvey Road, but by politicians engaged in a continuing competition for office. The political decision structure is entirely different from that which was envisaged by Keynes himself, and it is out of this starkly different political setting that the Keynesian norms have been applied with destructive results." (highlights mine)

In addition, the economic profession appears to have been "bought" or largely influenced by government.

For instance according to the Huffington Post, the US Federal Reserve ``doles out millions of dollars in contracts to economists for consulting assignments, papers, presentations, workshops, and that plum gig known as a "visiting scholarship."

In other words, many in the economic profession function as propaganda mouthpieces for the government.

Hence, the views of mainstream economists have been skewed by conflict of interests and hardly reflects on reality. This is what one might call the Agency Problem.

Here is a trenchant satire about mainstream economists...

``A mathematician, an accountant and an economist apply for the same job. The interviewer calls in the mathematician and asks "What do two plus two equal?" The mathematician replies "Four." The interviewer asks "Four, exactly?" The mathematician looks at the interviewer incredulously and says "Yes, four, exactly."

``Then the interviewer calls in the accountant and asks the same question "What do two plus two equal?" The accountant says "On average, four - give or take ten percent, but on average, four."

``Then the interviewer calls in the economist and poses the same question "What do two plus two equal?" The economist gets up, locks the door, closes the shade, sits down next to the interviewer and says "What do you want it to equal?"

Four, oversimplification of analysis.

Economic models and dependence on statistical aggregates allow economists to assume that people's action or reactions work in the same manner even in facing the same circumstances.

Unfortunately this isn't true, that's because everyone have different scale of values or priorities.

Besides, reality means more options (or complexity) than what most economists presume (who assume laboratory conditions).

Yet economists are merely human beings and are thus subject to cognitive frailties. This means they can be swayed by mental shortcuts 'heuristics' or impulse based decision making or analysis derived from the agency problem incentives.

The only difference is that they can they can embellish their statements or studies with technical economic gibberish. As Nassim Taleb of the Black Swan fame says, ``Let us remember that economists are evaluated on how intelligent they sound, not on a scientific measure of their knowledge of reality."

Lastly, Hubris.

Many economists believe that their proficiency in math models and or economic theories privileges them with a clear edge over the rest of humanity that they resort to pedantic moralization of the world's problems accompanied by their sanctimonious prescriptions to such problems.

This is a practice of conceit aside from the cognitive folly known as overconfidence.

As Friedrich von Hayek warned in his Nobel Laureate speech, ``To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm. In the physical sciences there may be little objection to trying to do the impossible; one might even feel that one ought not to discourage the overconfident because their experiments may after all produce some new insights. But in the social field, the erroneous belief that the exercise of some power would have beneficial consequences is likely to lead to a new power to coerce other men being conferred on some authority. Even if such power is not in itself bad, its exercise is likely to impede the functioning of those spontaneous-ordering forces by which, without understanding them, man is in fact so largely assisted in the pursuit of his aims."

In short, be aware of the hazards from the pretentious knowledge peddled by the mainstream.

Bottom line: Not because most in the economic profession cannot be trustworthy doesn't mean that everyone is.

One way is to examine the incentives that prompts for an economist or expert to argue his point. The other is to keep an open mind to diversified ideas.

And that's why it is recommended that everyone develop their own 'independent' judgment by learning the ropes, since economics encompasses all fields related to human social interactions.

An apt quote from Professor Joan Robinson of Cambridge University, ``The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists."