Are economists idiots?

Paul Krugman is very much in the news for his views on fighting the fiscal phantoms. And from the bottom of my heart, I wish this economist a long life. But when the inevitable does happen, I wonder what he will be most remembered for? 

1) Winning the 2008 Nobel Prize in Economics

2) Suggesting that America prepare for a non-existent alien invasion to fix her fiscal woes (apparently it will get people working)

3) Calling some of his fellow economists idiots on radio ("There are some idiots who've won Nobels")

Source: http://school.discoveryeducation.com/clipart/clip/dunce2.html

I will certainly remember him for referring to some of the Nobel laureates as certifiable idiots. Martin Fridson in Forbes, questions whether Krugman should tip off the presidents and prime ministers of various countries in case their governments are pursuing the policies of these imbeciles. But then again, one wonders how many of the economists, whose reputations are now questionable thanks to Krugman, will in turn call him an idiot. 

I am sure Krugman won't take offense. In fact, in that very interaction on air, Krugman did say that winning the Nobel prize did not shut up his critics but it certainly stopped people from calling him an idiot for 2 weeks. 

I wonder if Alan Greenspan regarded Krugman as an idiot? Krugman certainly thought he was one. Years ago, Krugman wrote this: "If you want a simple model for predicting the unemployment rate in the US over the next few years, here it is: It will be what Greenspan wants it to be, + or - a random error reflecting the fact that he is not quite God." Last year in a blog post, he stated that "the exceptional Mr Greenspan continues his efforts to cement his reputation as the worst ex-Fed chairman in history".

What about Paul Volcker? In another blog post, Krugman stated that "Volcker is worrying about re-fighting the 1970s when we're actually re-fighting the 1930s. And fighting the wrong war is a good way to lose the one we're in." 

So what does this mean? While we widely regard economists as brilliant, they tend to regard each other as boneheads.

Justin Wolfers in Freakonomics.com speaks of one of the best-kept secrets amongst economists. According to him, there is remarkable agreement among economists on most policy questions. This consensus is obscured by 2 laws of punditry. 
First, for any issue, there's always at least one idiot willing to claim the spotlight to argue for it.
Second, that idiot may sound more respectable if he calls himself an economist. :) :) :)

A few months ago, a blogger on the Economist wrote about the history of macroeconomics. It stated that economists spent 30 years debating what the experience of the Great Depression meant and then another 30 seeing if they had arrived at the right answer. 

That it was man made became the economic consensus; the rest was intensely debated by squawking heads. Not surprisingly. According to Edgar Fiedler (an economist of course), "ask 5 economists one question and you will get 5 different answers; 6 if one went to Harvard". 

So the Keynesians focused on fiscal policy as an engine of stabilisation. They held that central banks were relatively helpless because interest rates fell to very low levels. 

Others vociferously protested - Milton Friedman led this pack. He said that interest rates were low because the Fed has pursued a too-tight monetary policy. Friedman argued that the Depression indicated that monetary policy was extremely powerful and the central bank had an important influence over money supply and in the short run this could have a significant impact on the real economy.

Later on Robert Solow had something to say about this: "Everything reminds Milton Friedman of the  money supply. Everything reminds me of sex, but I try to keep it out of my papers." If he is an idiot, he is an honest one!

But the funniest of all is this quote by John Kenneth Galbraith: "Economics is extremely useful as a form of employment for economists." Seriously, I am not one to judge specially since I hold no Ph.D in Economics. But was that not an idiotic statement? Or am I missing some profound meaning? If yes, then maybe I am the one who is an idiot. And on that, I am quite sure I could get a consensus. 

The myth of diamonds & romance

A friend asked me to accompany him shop for an engagement ring for his girlfriend.

We saw some fabulously eye-catching stones – fantastic clarity, great saturation of colour, large size and brilliant cuts. But he consistently ignored the rubies, emeralds or sapphires. He was fixated on a diamond. His reasoning: That is what men give women they love and what women want to feel loved (seriously, how overly clichéd was this?). I reminded him that even Mark Zuckerberg bypassed the diamond and went for a ruby. "But he must have had stock options to compensate," my friend argued.  

Earlier this year, Ashleymadison.comcommissioned a survey across 2,600 ‘actively-cheating husbands’ across the US. The driver behind this survey? To obtain a better  understanding of male infidelity. I doubt there are any more interesting revelations to unearth on this subject, but a few tit-bits from this survey were worth noting.  

• 53% of the cheaters said they would buy diamond jewellery for their mistresses, and only 27% considered doing the same for their wives
• 38% would buy flowers for their mistresses, only 19% would do so for their wives
• While just 8% would buy household items (like toasters, I guess) for their mistresses, 27% would happily gift such stuff to their wives (how practical)

So diamonds might hint at romance, but not at fidelity. 

In an earlier post, I wrote about Paco Underhill's reasons on why men purchase jewellery for women from his book Call of the Mall.

1) Keys to the front door

When men want to make blatant declarations of affection or intention they gift jewellery. These occasions don’t present themselves very often - engagement, marriage. And if the woman is lucky, an anniversary or birthday down the line. This is their way of convincing/ reminding the woman of the extent of their love. After all, you would not blow up thousands if you were not committed right? My friend falls in this category.

2) Keys to the back door

When they need the convenience of a relationship without the commitment that comes with front-door entry. Hence, mistresses, lovers and girlfriends are recipients of jewellery. Their way of convincing the woman it is worth her while to hang around. Ashleymadison’s ‘actively cheating husbands’ would feel right at home here. 

3) Keys out of the doghouse

Their way of saying sorry and want to make amends for bad behavior, specially if the woman at the front door has found out about the woman at the back door. Flowers wither too quickly, perfumes don’t last forever and chocolates will only make you fat. Nothing says “please forgive me for being such a jerk” better than a fine necklace that has caused a sufficient dent to the bank balance.

But then again, this is jewellery at large. Why are diamonds so stereotypically associated and synonymous with romance?

Apparently, the blame is to be squarely laid at the feet of De Beers. Ira Weissman, Founder, Truthaboutdiamonds.com, believesthat the entire tradition of the diamond as a gift given during a marriage proposal is a modern-day invention of Fifth Avenue real-life Mad Men. :)

The De Beers ad campaigns in timeless black and white used the slogan “A diamond is forever” in what has been expressed as one of the best marketing campaigns ever (credit to agency N. W. Ayer). In this particular one,  it tells you how two month’s salary lasts forever. Of course, it does not say that the size of the salary will also determine the size of the diamond and the eventual return on the investment. In another, a man screams "I love this woman" on a public square much to her embarrassment. The ad suggests a better way - give her a diamond ring. On getting that she throws her arms around him and whispers "I love this man, I love him, I love him".

Decades ago, Edward Jay Epstein wrote a legendary piece in The Atlantic on this very subject. Advertising agency N. W. Ayer drew up a well-orchestrated advertising and public-relations campaign to impact the "social attitudes of the public at large and channel American spending toward larger and more expensive diamonds instead of competitive luxuries."

The agency romanticized diamonds by altering the public's picture of the way a man courts -- and wins -- a woman. Since "young men buy over 90% of all engagement rings" it would be crucial to inculcate in them the idea that diamonds were a gift of love: the larger and finer the diamond, the greater the expression of love. Similarly, young women had to be encouraged to view diamonds as an integral part of any romantic courtship.

Movie idols, the paragons of romance for the mass audience, would be given diamonds to use as their symbols of indestructible love. 
The agency offered stories and society photographs to select magazines and newspapers to reinforce the link between diamonds and romance. Stories would stress the size of diamonds that celebrities presented to their loved ones, and photographs would conspicuously show the glittering stone on the hand of a well-known woman. 
Fashion designers would talk on radio programs about the "trend towards diamonds".

The Ayer plan also envisioned using the British royal family. "Since Great Britain has such an important interest in the diamond industry, the royal couple could be of tremendous assistance to this industry by wearing diamonds rather than other jewels." Queen Elizabeth later went on a well-publicized trip to several South African diamond mines, and she accepted a diamond from Oppenheimer.

Lecturers were arranged to visit high schools across the country. "All of these lectures revolve around the diamond engagement ring, and are reaching thousands of girls in their assemblies, classes and informal meetings in our leading educational institutions," the agency explained in a memorandum to De Beers.

And that for me explained the link between romance and diamonds - all the fabrication of smart marketing executives. 

But of course, as an investment, diamonds outshine many rivals. This month itself, the auction of diamonds created waves across the globe. A flawless deep-blue diamond sold for little over SFr 10 million (Sotheby, Geneva). The Archduke Joseph Diamond fetched around SFr 20.35 million (Christie’s, Geneva). 

SFr = Swiss Franc

While this is beyond the reach of virtually all humans on this planet, it has indicated a trend of holding diamonds as an investment. Eric Valdieu, an expert formerly with Christie's  launched an investment fund last year called Divine Jewels. In September, Financial Times reported that IndexIQ, a New York company, is supporting the first diamond-backed exchange-traded fund. The proposal is being reviewed by the Securities and Exchange Commission. Harry Winston, the largest publicly traded diamond company, is also collaborating with a Swiss asset manager on a $250m fund to buy diamonds wholesale to store in a vault, using money from hedge fund investments.
The article went on to state that diamonds have proved to be a low volatile investment and the super rich are giving it serious thought. Prices of polished diamonds have risen 100% since 2004 and show no signs of abating. 
A few months ago Business Today wrote on how Indians are considering diamond purchases though we are apparently way behind the Chinese.

If you are considering an investment in diamonds, there is no fund (as mentioned above) available in India. You will have to purchase the stones, so make sure you buy certified ones. Gold is gold. But each diamond is different and unique and the pricing tends to be opaque. Do your homework before venturing into this territory.