"If economists are so smart, why aren’t they rich?"

by Tyler Cowen May 10, 2022 at 12:41 am in

Peter Coy (NYT) considers a few hypotheses. My take here is pretty simple. Here are three of the main ways to beat market returns:

1. Build a new product and sell it successfully.

2. Assemble and maintain an especially talented team of quants. (It is a separate but still relevant question at what scale you can do this and thus how rich you can become.)

3. "See" something about the market, at least for a limited period of time, that other people do not and invest accordingly. That might be falling interest rates, the rise of consumer tech, or the persistence of low inflation (all until recently!). Note that #3 requires you to have some money in the first place, and for your run to be long enough that you truly become rich.

Putting aside generic demographic factors, there is no particular reason to expect #1 or #2 to be much correlated with expertise in economics.

You might think that #3 is somewhat correlated with expertise in economics, but I don’t think it is very much. You can pile up a bunch of ancillary reasons why economists might not be practically oriented enough to succeed at #3. But even putting all that aside, economic theories of "regime change" just aren’t very good! (It is comparative statics that we excel at, but that knowledge can be replicated and sold cheaply to the rest of the investment community, if it turns out to be valuable.) So knowing economics won’t correlate much with success at strategy #3. And some of those non-economists who succeed at #3 are just lucky anyway.

And that is why, dear reader, most economists are not very rich. You are correct in downgrading their intelligence for these reasons, though there are still some regards in which they are quite smart, such as having ability at hypothesis testing, or perhaps having the ability to ask very good and penetrating questions about economic issues.

Comments

Phil S.

2022-05-10 02:02:46
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#

Why don't English professors dominate the top of the best-sellers lists?

Where are all the top-40 hits from music professors?

How come Gates and Zuckerberg are so successful without even an undergraduate degree?

There's a place for economics professors in the world, but I agree with Tyler that it's not a great black mark against them that they're not sprouting new Warren Buffetts every few years...

Thelonious_Nick

2022-05-10 11:49:27
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#

Louis Jordan seems apropos:

https://www.youtube.com/watch?v=-np10MF7IaM

Stanley Nelson

2022-05-10 01:19:26
41 -1
#

Also, the strong pull of EMH as the baseline explanation for everything in markets dissuades economists from trying. No $1M bills on the sidewalk…

I know it did that to me before I was disabused of it

G.H.

2022-05-10 05:04:14
10 0
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Is there a Forbes rich list for economists? I'd be interested to know the wealth rankings of Summers, Cowen, and Krugman.

It would be funny to see if Krugman avoided internet/tech stocks all those years because he thought they were fax machine companies.

El Conquistador

2022-05-10 13:39:22
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From Celebritynetworth.com (based on all the Ukrainian Women adds on the site, it's probably not very credible).

1) Robert Rubin $100 million
2) Larry Summers $40 million
3) Ben Stein $25 million
4) MrBeast $25 million
5) Alan Greenspan $20 million
6) Janet Yellen $16 million
7) Larry Kudlow $10 million
8) Timothy Geithner $6 million
9) Ben Bernanke $5 million
9) Jonas Max Ferris $5 million
11) Robert Reich $4 million
12) Manmohan Singh $3 million
13) Paul Krugman $2.5 million

Tyler Cowen & Alex Tabarrok - Not listed!

I threw a couple fun extras on this list, but outside of that the general path to economist wealth seems to track directly through Harvard and the Federal Reserve.

JWatts

2022-05-10 17:12:26
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It's hard to believe that Paul Krugman could only be worth $2.5 million. That seems like a very low figure for someone who was apparently making $250K at CUNY 8 years ago. Plus whatever the NYT's and Princeton pays him.

https://newrepublic.com/article/117399/krugmans-cuny-salary-doesnt-make-him-hypocrite-inequality

JWatts

2022-05-10 17:13:27
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On second thought, maybe Krugman really is that bad at managing his money.

Dismalist

2022-05-10 20:46:44
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The numbers amount to chicken shit.

The correct question is: If you're so rich, how come you're not smart!

M

2022-05-11 03:29:13
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Also key to investment success is timing, which no economic theory can model accurately.

Dino the Isaurian

2022-05-10 00:46:00
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The flaw is in the unstated premise that intelligence leads to wealth,

Will

2022-05-10 02:31:15
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The other flaw is in the unstated premise that intelligent people want an abundance of wealth. I'm inclined to say more economists life comfortable lives and are content with that.

Will

2022-05-10 02:31:57
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Um, "most economists live comfortable lives"

stasi

2022-05-10 04:02:48
8 -5
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Intelligence in the domain of economics would lead to wealth if economics had any actual predictive value.

Crocetti

2022-05-10 10:49:45
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BINGO ! ... Economists have NO predictive powers of specific market movements or future resource valuations; nor do they know how to control them.

If economists could predict things, they wouldn't need to toil daily as government. corporate, or academic drones.

However, economists generally do a make comfortable upper middle class living as soothsayers to a gullible populace.

Economics was a 19th century invention rooted in the Enlightment search for knowledge.
Though its label as a science has never been proven, economists somehow created a wide reputation as financial forecasters.
Ensconced in foundations, finance ministries, corporate planning departments, ivory academic towers, and saturating the media -- Homo Economicus ruled ever since.
Who else would tell us how our complex societies were likely to develop?
Who else was capable of predicting the future?
Economists soothe our fears of a scary unknown future -- that's what they sell, pofitably.

Hieronymous

2022-05-10 17:05:47
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There is an argument about the 'true value' of most professions. My personal experience with economics is that the value comes more from pushing common sense with solid quantitative and statistical backing. These are important and surprisingly hard to come by whether in the public or private sector.

Kaleberg

2022-05-10 19:12:09
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Actually, economics was invented to justify the status quo. It's like being a clergyman when the divine right of kings was a thing. It can pay fairly well, but you aren't going to become a king.

Dino the Isaurian

2022-05-10 08:13:23
5 -3
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Not necessarily.

You seam to think that wealth is achieved by "beating the market", as opposed to tenacity, risk tolerance, obsessiveness and good fortune.

John

2022-05-10 10:11:53
5 -4
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So you’re saying the there are just as many people with net worths above $1,000,000 who have IQs above 100 as below 100? Is that your theory?

Slocum

2022-05-10 06:55:34
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False premise -- most economists ARE rich using method #4 (find a high-paying career and stick with it). They're rich in the sense of being toward the top of the income & wealth distribution in the wealthiest societies in the wealthiest period in human history. Becoming even richer would mean taking on a lot more risk, putting in longer hours, and spending their days in work that they find less interesting. Why would they do that when they're already rich?

Kevin

2022-05-10 01:25:19
23 -1
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I know a number of rich people with economics degrees. None of them stayed in academia though!

It's like looking at the population of 7 foot tall people who are university professors, and asking "if height helps you play basketball so much, why aren't these people NBA players?"

Paul

2022-05-10 01:37:01
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Exactly right. You may be a smart economist who figured out how to become rich. To implement your plan, you have to change your profession. But then you're no longer an economist.

Kaleberg

2022-05-10 19:15:01
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Exceptions have to include Black and Scholes.

Reason

2022-05-10 13:02:46
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If a person is 7' tall, IIRC, the chance of playing in the NBA is ~15%.

Tom T.

2022-05-10 09:31:52
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The real money is in politics.

w

2022-05-10 10:10:22
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...or crime.

Quantitative Sneezing

2022-05-10 11:30:42
2 -1
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Stop repeating Tom and being redundant.

Roland

2022-05-10 01:22:08
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Was it Frank Knight who said "Economics won't keep you out of the bread line, but it will tell you why you're there."?

That said, acting on Austrian business cycle theory saved me from significant losses in 2007-2008, and it's starting to pay off again in the predictable aftermath of Powell's Great Wall Street giveaway.

Bowles

2022-05-10 04:58:01
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Be honest, Roland. How many recessions did you predict in that time?

In my experience, ABC doesn't mean Austrian Business Cycle theory but Austrian Broken Clock theory.

Dino the Isaurian

2022-05-10 08:14:36
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It’s successfully predicted ten of the last two recessions.

Roland

2022-05-10 09:14:55
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And yet both came after major government-sponsored debt expansions… This isn’t rocket science.

Corp 9592

2022-05-10 01:35:08
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When you have a hammer….

MikeP

2022-05-10 02:04:52
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...you wait for a nail to appear every 15 years.

celestus

2022-05-10 13:42:12
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I mean, this is unintentionally the answer, isn't it? #3 assumes that people seeing something about the market will be correct when, for whatever reason, the dominant strategy for the last 40 years has been to buy a broad index and hold and reinvest.

Anyone investing real money in real time convinced that Austrian business cycle economics gives good personal finance signals would have pulled their money out of the stock market sometime between fall 2008 (TARP) and spring 2009 (Obama stimulus) and...never reinvested, right? There has been ZIRP, QE, and multi hundred billion dollar deficits basically ever since. Certainly any stocks owned in March 2020 would have been sold upon the passage of a $2.2 trillion stimulus bill and, again- I don't see why an Austrian economist would have bought US stocks at any point since then.

Similarly Krugman was an economist and supposedly still was one on election night 2016 when he guessed the stock market would "never" recover.

Then there are the finance professors who publish papers about value investments outperforming growth. Ouch!

celestus

2022-05-10 15:57:51
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Forgot the Shiller P/E ratio

Alan Goldhammer

2022-05-10 08:14:11
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Professor Cowen forgot to add one other possibility:

#4. Get tenure at a good university that then provides a guaranteed income for life along with a good pension plan. Then sit back and do nothing.

Lee

2022-05-10 01:29:51
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Economists are like music critics.

Music critics know a lot about music. They might be good at spotting talent, but can they leverage that profitably? Can they manage a team? Produce a record? They may know what makes songs good, but can they actually write one?

Analysis paralysis

2022-05-10 08:28:39
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Economists and the broader intellectual elite are risk averse. Those who have more appetite for risk leave their comfy academic/corporate post and go into the private sector, where their job title is no longer 'Economist.'

Phil S.

2022-05-10 01:54:22
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Relatively few people BECOME rich by outperforming the stock market with their investments. (Though, with steady investing, whether in index funds or American Funds or the like, you can accumulate a nice nest egg.)

Depending on your definition of rich, most folks get that way via high income (doctors or programmers), or starting a business. If the latter, it's not necessary to invent something. Being a Taco Bell franchisor or having a successful plumbing company or the like can provide substantial wealth/income. And then there's inheritances...

Kaleberg

2022-05-10 19:23:28
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The thing is that you don't have to do better than the market. You just have to do better than 95% of all mutual funds. An index fund can do that just fine. (Go to Morningstar and see.)

My father was a very good investor, but he was not trained as an economist. He just figured out what people were buying or were going to buy and who was selling it to them or going to sell it to them at a profit. We'd go to a new town, and he'd start noticing things and then thinking about them in support investment ideas. I do that now, but I don't bother stock picking the way he did. I just go for index funds. The market divorced from the economy in the 1980s, and it is now supported by the government to guarantee a return. It was different when he was investing because the government supported individuals and their spending, not investors and their market prices.

Scott H.

2022-05-10 21:48:50
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What return are we guaranteed? I may have a complaint.

ihaal

2022-05-10 01:34:01
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The main reason is probably that they have chosen to work in universities.

Ben

2022-05-10 01:01:08
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I still don't understand why Tyler and other economists are so dismissive of people like Buffett/Munger using value-investing principles to beat market returns.

They always quote "Efficient Market Hypothesis" and leave it at that.

Do they just believe Buffett and Munger are flukes? Do they lack the temperament to ride out market volatility themselves (i.e. Buffett says it's not a game of IQ, but stomach)? Do they just believe that that value investing is too hard and so everyone should stick to index funds?

The final one is the most obvious, but then if the claim is that economists *ARE* smarter than average, then they should be able to do it, no? Keynes did.

Dzhaughn

2022-05-10 01:41:51
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But Buffett and Munger got super rich by building their insurance businesses around slightly better than average returns. Good for them! That's not exactly (1) but it isn't any more repeatable than that. And now their returns are average, according to their own admission.

LivelyClock

2022-05-10 02:40:50
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Another interesting point. If you take out Berkshire Hathaway's top six investments, their results are in line with market average.

The best investors in the world had only six wins over 70 years. That's how difficult active investing is.

They are also patient, letting compounding work for them.

w

2022-05-10 10:12:22
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But they DID have those wins.

Phil S.

2022-05-10 01:59:09
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Buffett has been the most well-known, relatively conventional American stock market investor, for at least the last 2 decades. But his track record was mainly compiled in the preceding 4-5 decades.

Overall, active investors in conventional stocks haven't have a great collective record for at least several decades, even if there are individual outliers. As for the latter, it's hard to separate skill from chance until a REALLY long/outstanding record is compiled. (i.e. Something like Buffett has done, but who is the 50-60 year old version of Buffett?)

Alan Goldhammer

2022-05-10 08:16:30
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Berkshire Hathaway is outpacing the market this year while most hedge funds have suffered devastating losses.

Ricardo

2022-05-10 09:29:00
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See this 2021 article comparing Berkshire Hathaway to the S&P 500 over different time frames. Berkshire Hathaway either underperformed or just about matched S&P performance over the 1-, 3-, 5-, 10-, and 15-year time horizons.

Naturally, whenever outcomes are somewhat random, you will have the occasional good year.

https://seekingalpha.com/article/4423498-berkshire-hathaway-versus-s-and-p-500-through-years

BC

2022-05-10 04:02:58
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It's actually pretty well accepted now among academic (financial) economists that there has been a so-called "value premium" that has produced excess returns historically, namely that stocks with high book-to-market ratios have beaten stocks with low book-to-market ratios. (Google Fama and French.) It's so well accepted that academic economists argue that the portion of investment strategies' returns that can be "explained" by this value premium shouldn't count as alpha. That's something to keep in mind when academic economists say that most active managers don't produce alpha: economists don't count as "alpha" returns that are attributable to various "priced risk factors": value premium, size premium, quality premium, momentum, volatility premium, low-beta premium, crash premium, among others. There's actually a long list of these don't-count-as-alpha factors.

In the case of value premium specifically, there is some evidence that value stocks underperform growth stocks during recessions so that the value premium is compensation for bearing recession risk. Since most people's human capital drops in value during recessions (due to increased risk of unemployment for example), the value premium's correlation to human capital can be considered a risk such that excess returns to value should be considered compensation for bearing risk rather than "alpha".

There's actually so many of these "risk" factors, and enough ambiguity over which factors constitute actual risk (and which ones will actually produce meaningful premiums going forward), that it's become a semantic argument as to whether returns attributable to these factors are actually "alpha" or "beta". An EMH stickler will typically argue (after the fact), "Hey, I could have produced similar returns through this combination of risk factors, so those returns shouldn't count as alpha." The EMH skeptic can respond that no one was advocating ahead of time for an "index fund" composed of that particular combination of factors --- the factor weightings are typically obtained after the fact by examining a strategy's historical returns --- so that building a portfolio of factors with desirable return characteristics does take skill and, therefore, should count as "alpha".

Garrett

2022-05-10 08:40:18
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The value factor has been underwater since 2007

ABC

2022-05-10 02:34:57
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Notably absent: "n. Trading the sweat of your brow for money on the open labor market."

Kaleberg

2022-05-10 19:24:10
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That's almost the definition of how NOT to get rich. You're lucky to get enough to eat that way.

Kaleberg

2022-05-10 19:25:28
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There's an old saying: you don't get your fuck you money out of cash flow.

LivelyClock

2022-05-10 02:35:22
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Must admit. I've wondered about this often. Thanks to TC for sharing his thoughts.

Bill

2022-05-10 08:14:17
4 0
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For the most part
They earn
W-2 incomes and
Are paying off
Student debt.

Bill

2022-05-10 08:23:42
3 0
#

Is this related to
The post that
Epidemiologists must
Not be good
Because they do not
Make much money?

ABC

2022-05-10 01:33:08
3 0
#

Then went on to do #1 better than anyone else on the planet. It seems his economics training has influenced the industries he works in. More interesting is the fact that he attributes his success to his dogmatic alignment with his other degree in physics.

Bazza

2022-05-10 02:33:35
1 -1
#

In ref to Elon Musk, I presume.

Crikey

2022-05-10 03:42:21
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#

If you see a market opportunity, capital will be required to make the most of it. But the only way a good market opportunity will exist is if it's non-obvious, which makes it hard to raise capital. It's at this point that having wealthy parents becomes really important.

Then, after you've made a bundle with help from family members, you have to do it all again to make it really big. A lot of people stop at this point. Some, quite deliberately. Economists are probably better at weighing up the odds and so many will be smart enough to not take large risks.

Disagree

2022-05-10 06:13:09
7 -1
#

I followed a NYSE stock for many years and in December 2021, 30,000 long out of the money call options contracts were traded @ .85 per share. By March 2022, the same call traded at $10. per share. A nice $27MM gain. To a follower of that stock, the industry, economic cycles, the stock was the lowest risk of loss, highest probability of gain I have encountered in 40 years.
Would I have made the call option bet? No. As Charlie Munger has said, conviction is essential in making your opportunity bets.

Kaleberg

2022-05-10 19:28:01
1 0
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The problem is that conviction is also a good way to lose one's shirt. There's a lot of survivor bias.

BC

2022-05-10 04:06:08
3 0
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Economists probably do earn higher incomes than other social scientists, and those higher incomes do seem to reflect more careful and rigorous thinking. That's my observation anyways.

Bob

2022-05-10 11:34:32
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The trick is, who is rich today? With very few exceptions, people that have had tremendous returns of capital. It's hard to get to, say, 100m without investing in something that crushed average stock market returns. Some people get said returns by having a high percentage on equity in the rare company that succeeded at this. But doing that is, for the most part, playing the lottery. For every great idea that is executed well and gives you a unicorn, you have dozens of great ideas that didn't manage to find their market well enough, or where the execution wasn't right.

The key either way is to get yourself in the capital train: Get other investor's money, and get a premium. Almost nobody gets rich by investing just their own money, but by taking a percentage of other people's capital: Whether it's because they invested in your startup, whether they couldn't pay for your expertise directly, and paid you in capital... Either way, use other people's money.

How are economists any good at convincing others to hand them their money to be managed, and then take a cut? That's the one skill that matters. The same skill that gets you to be good at convincing others to invest in your nonsensical NFT project, or to dedicate their lives to your pyramid scheme.

For good or for ill, economists are terrible at convincing people of anything, so they don't tend to become rich.

Mikeja

2022-05-10 00:56:02
4 -2
#

Elon Musk got a BS in economics

W.

2022-05-10 05:08:20
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His other BS was physics which was probably the more important degree since he runs multiple tech companies.

Good thing he didn't become an economist. What a waste that would have been!

Mike Bloomberg Approves of this Message

2022-05-10 07:57:08
4 -1
#

And Physics majors have higher GRE scores than Economics

AG

2022-05-10 01:20:45
4 -2
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And when some economists realise that they would not become rich through economics studies, they start hating the capitalism and turn to mmt etc

Kaleberg

2022-05-10 19:26:40
0 0
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How is MMT not capitalism?

James

2022-05-10 01:52:15
2 0
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Keynes?

Phil S.

2022-05-10 01:55:52
2 0
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FWIW, Keynes seemed to do alright as an investor:

https://en.wikipedia.org/wiki/John_Maynard_Keynes#Investments

rayward

2022-05-10 05:51:54
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I did not read that article because I assumed, correctly, it was nonsense. "Those who can, do; those who can't, teach." The same nonsense. The idea that economists should be rich is a mistaken idea because it assumes that economics is about the stock market; and if economists know so much about the stock market, why aren't they rich. To the person of average intelligence, the stock market is the economy (an idea that is reinforced in media on a daily if not hourly basis), an idea that actually, but unknowingly to the person of average intelligence, reflects an important insight. How so? Rising asset prices to achieve prosperity has been the policy in America for decades, a rising stock market one consequence of that policy. Today the Fed is grappling with the conflict of taming consumer price inflation with a contractionary monetary policy without causing asset prices to fall. Economists deal with this conflict by ignoring it, as though asset prices rise and fall by divine intervention not secular intervention. Yesterday we learned that Nouriel Roubini is going all in on crypto after a decade of hair on fire warnings about inflated asset prices especially inflated crypto prices. Last night Andy Warhol's silk screen of Marilyn Monroe's face sold at auction for a record $195 million. Meanwhile the stock market has been on a roller coaster, with prices approaching bear market. Where is the "real" economy? God only knows. And economists aren't God.

Scott H.

2022-05-10 21:56:46
0 0
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Legislate rising asset prices to achieve prosperity? Why doesn't every country think of that?

Asher

2022-05-10 06:29:31
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In the early 1980s I was an RA at the NBER. I was told the following story: The head, Marty Feldstein, carried out a number of estimates of the true worth of the stock market. (I think he was interested in Tobin's Q or something, not sure.) No matter how he did the calculation, it came out a lot more than the market value. (The Dow in those days was something like $1000.) So he and his research partners just put their money where there mouth was and bought a bunch of S&P futures which were then a new asset. A few months later they cashed them in at an impressive gain.

Millian

2022-05-10 08:56:31
3 -1
#

Cowen's Straussian point: almost all this wealth arises by luck. When I respectfully communicate the views of Peter or pmarca, weight these accordingly.

Andy

2022-05-10 09:00:57
2 0
#

well, the same could be said of most top-level scientists, few of whom are really rich, despite being undeniably very smart...maybe making tons of money is not what motivates them

John

2022-05-10 10:16:14
2 0
#

" Build a new product and sell it successfully."

That’s not really true in the vast majority of cases. The guy who owns Houston’s second largest pest control business is likely quite rich. He didn’t invent pest control or really any part of pest control. He just entered an already existing business and ran his business slightly better than the competition.

Some Guy

2022-05-10 13:12:03
2 0
#

As someone in finance, I don't think outperforming the market is the way most get wealthy.

The way the wealthy make it in finance is to start your own fund. And in the end that's starting a business and keeping the profits, same as every other industry.

Yes, beating the market helps a lot when you're marketing it, but 40% of people are doing that by chance. Statistically there's always a subset of people who get very lucky and beat the market for an extended period (4-5 years) or have a good idea and parlay that into a fundraising edge.

There are a few investors who truly seem to have an edge and beat the market, but that's only a couple of dozen and they're mostly not quants.

Berend de Boer

2022-05-10 01:34:11
12 -11
#

Not sure I fully agree with this. Someone teaching computer programming, and they can't program? Someone teaching painting, and they can't paint? Someone who teaches economics and cannot make money on the stock market?

The claim that you need to be rich is not very strong. If economics professors were any good in forecasting the economy, they could run their own 401K and make money.

I think the issue is more that economics does not have much practical value. It's more like philosophy. It helps you to understand life. It doesn't help to predict the future or make money from it.

ricardo

2022-05-10 10:48:40
0 -1
#

Is there no practical value in understanding life?

Scott H.

2022-05-10 10:17:59
1 -3
#

Where's your error? The underlying assumption that the market isn't efficient. People that know sports generally don't make a living gambling on them.

Gary Steinmetz

2022-05-10 09:13:00
1 0
#

I was told by my uncle that there are three ways to get rich: get married, win the lottery, win a lawsuit.

Kaleberg

2022-05-10 19:35:31
1 0
#

Marrying for money is HARD work. I've known people, mainly women but also some men, who have married for money. If you are marrying for love and the money just happens to be there, that's great, but if the goal is money, you have taken on a very hard acting job that runs 24/7. The thing is that you can be replaced quite easily, and you'll be reminded of this frequently. It's like working at Starbucks but with nicer props and you have to fuck someone.

The money will be there, but it won't be in your name, and the more money is involved, the better the lawyers are at keeping it out of your hands. You would likely do better marrying for $10M rather than $100M because of this. Granted, you might get a few million or a pension if you settle quietly when things break up, but it isn't easy money.

Scott H.

2022-05-10 22:03:48
0 0
#

Free coffee, great props, and I get to fuck someone? Hmmm...

VP

2022-05-10 11:21:45
1 0
#

I would say it's for the same reason that most teachers of literature aren't necessarily great or even good writers or poets. Practicing an art isn't necessarily the same thing as understanding it.

dearieme

2022-05-10 12:45:49
1 0
#

When people remark on Keynes's success as an investor they always seem to point at the wealth he generated for his college. Did he make much for himself?

PaulL

2022-05-10 01:43:33
0 0
#

Many (most?) economists believe to some extent in efficient markets theory. To the extent that efficient markets is a valid theory, you can't make super returns in the market. So, if economists are so intelligent (i.e. they're correct), then the evidence of that would be that they don't make money in the markets......

Ray

2022-05-10 02:13:02
0 0
#

Of course 1 is correlated with Economics. From marginal cost decisions, to pricing optimization, and operating efficiency...everything is economics!

Ricky

2022-05-10 07:12:04
0 0
#

It is an unfair criticism because the profession of economics is a different skill from making money -- points 1&2 and lots of other explanations. As for point three, that is largely a quantitative skill and there are much better quants out there than economists.

Duncan

2022-05-10 09:39:36
0 0
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#3 ... LTCM. A perfect example of the brilliant economists exploiting a arbitrage in markets / market infrastructure. It prints money for a while, until the paradigm changes.

At that point you're a bit too deep in the woods and perhaps don't see the next big trend in the macro/micro markets.

Ryan

2022-05-10 09:54:52
0 0
#

Is the premise even true? Do economists have just average or below-average wealth, conditional on age? The income data, at least, would suggest otherwise, as median economist income is $105k and that includes non-PhDs. Lots of newly minted PhDs can start near $200k, and senior people of certain fields can go into the private sector for twice that or better.

Or perhaps by "rich" we mean "in the upper upper tail of the wealth distribution," in which case there are probably no groups with sizeable representation among the "rich," because by definition only a small number of people can be rich. But as Tyler says, if that is how rich is being defined then we might instead ask "why don't economists start innovative companies" or "why don't economists start quant hedge funds". But economists do not claim to be great entrepreneurs, and few people want to work at a hedge fund--disinterest in the Wall Street lifestyle isn't unique to economists. So when put this way, it becomes a sort of dumb question.

Either way, it seems like getting data on the empirical claim that forms the premise of the question would be a good place to start.

chrisare

2022-05-10 10:38:18
1 -1
#

Academics are risk averse. Entrepreneurs are not.

Bill Drissel

2022-05-10 12:18:03
0 0
#

"The answer to the question, 'If you're so smart, how come you're not rich?' is that the difference between a good bargain and a good idea is so large that it's rare to find the ability to appreciate both in one person." - Not original with me (I've been trying to find the author for years)

w

2022-05-10 13:56:54
0 0
#

Let's first look at that premise: "If economists are so smart..."

Hmmm....

JK Brown

2022-05-10 15:36:09
0 0
#

When I was getting my undergrad in Physics, one of the professors in the department declared to his class that he was going skydiving and was going to calculate his rate of descent. He broke his leg.

Being able to do the math is not always a good indicator of knowing what is important, useful in the moment or critical to future success.

Pyrmonter

2022-05-10 22:15:17
0 0
#

'Not rich' - compared to what? A tenured professor in an advanced economy enjoys variety of life, intellectual stimulation, has options for some sort of windfall through consulting or networking, good healthcare and fairly high levels of material consumption with little risk of catastrophic failure. That is, she has well-being levels that would be the envy of most European rulers a century ago.

Casey

2022-05-10 23:31:32
0 0
#

An amazing blind spot is being revealed here in not accounting for the role of sheer luck in getting rich. That, more than skill or effort, is the determining factor.

mkt42

2022-05-10 03:32:09
2 -3
#

Dumb article, which never even bothers to find out that the question is based on incorrect information. It's been known for decades that economics majors earn more than any non-STEM major, and according to this graph earn more than all but four engineering majors when we look at mid-career (rather than starting) salaries:
https://www.visualcapitalist.com/visualizing-salaries-college-degrees/

It's as dumb as asking "if the US's economy is so productive, why is its per capita GDP lower than China's?", and then trying to come up with explanations for that so-called fact.

Anonymous

2022-05-10 05:09:23
4 -5
#

Why are some economists rich? They are faithful to their corporate donors. "Big Business: A Love Letter to an American Anti-Hero" can be purchased wherever books are sold.

sk

2022-05-10 09:14:09
0 -1
#

They are academics and for the most part risk averse. there are many who have only a HS education who have become fabulously wealthy starting with little but huge risk takers and understanding of how market trades.
Too many economists probably believed in for too long the Efficient Market Hypothesis.
On top of which, is the goal in life to just be rich?

Steve Sailer

2022-05-10 01:44:44
12 -15
#

My impression is that economists are pretty rich by the standards of Ph.D.s.

Mumfrey

2022-05-10 05:00:22
10 0
#

Economists Ph.D.s being richer than most social science Ph.D.s is like being the tallest dwarf.

Steve Sailer

2022-05-10 01:47:04
6 -8
#

GRE-takers who intend to get doctorates in economics and philosophy average near the top of GRE scores, behind only physicists and a few similar specialties. My hunch would be that 20 years later, economists tend to have higher net worths than philosophers.

Phil S.

2022-05-10 02:05:32
4 -1
#

IIUC, undergrads who get philosophy degrees actually do pretty well, probably because they're disproportionately from elite eastern U.s, high IQ, and many likely from family money (hence they feel comfortable pursuing a degree like philosophy).

As for those who go on to get a PhD and teach, they probably value money less than Econ PhDs, so it wouldn't be surprising if they underearn, relatively.

Steve Sailer

2022-05-10 08:52:27
3 -6
#

I would imagine that Yale Law School has a fair number of students who were undergrad philosophy majors, rather like Harvard Business School has a lot of undergrad econ majors.

joan

2022-05-10 04:09:35
6 -4
#

Most physicist are not rich either unless they give up physics and get a job on Wall St. Before government started hiring them to make to make weapons they were as poor as artist. Einstein supported himself working in the patent office while developing the theory of relativity.
It is a myth that rich people as smart, they are just willing to spend their life doing boring stuff while taking risks that leave a few very rich but most poorer than college professors.

Steve Sailer

2022-05-10 08:50:01
4 -7
#

A lot of academic economics is interested in a developing a narrow understanding of how one thing works when all else is equal: if X then, ceteris paribus, Y.

But making money in investment markets is more about having a loose but broad grasp on everything that is going on at the moment.

Narrow and broad understandings are different kinds of intellectual challenges. I suspect people who prefer to do one will tend to get bored with doing the other.

Steve Sailer

2022-05-10 08:58:37
9 -12
#

Heck, I have enough trouble just trying to get top economists like David Card and Steven Levitt to remember giant episodes in the history of the cocaine trade that kept ceteris from being paribus in their famous theories.

Card's 1980 Mariel Boatlift wage study totally forgot the giant cocaine boom in 1980 Miami that led to "Scarface" and "Miami Vice." And Levitt's abortion-cut-crime study totally forgot the Crack Wars between his two dates of 1985 and 1997 in which youths born right after Roe v. Wade had much higher youth murder rates than those born right before Roe v. Wade.

PHinton

2022-05-10 01:00:39
5 -9
#

I think most economists are like modern day "efficiency experts" where their aim is to really optimize a process. It could be a small scale process (on the TV show Gold Rush they hired a recent economist grad to help them optimize their gold mining operations) or it could be a large scale process (what group should get the vaccine first).

But generally, economists are making something run better, and not necessarily making something brand new that people really want. And making something brand new that people really want is where the money is.

And whether you are smart or dumb, if you can make something that people covet, you are going to do OK.

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