CERN has just announced
the discovery of a new particle, called the “FERIR”.
This is not a fundamental particle of matter like the
Higgs Boson, but an invention of economists. CERN in
this instance stands not for the famous particle accelerator straddling the
French and Swiss borders, but for an economic research lab at MIT—whose
initials are coincidentally the same as those of its far more famous cousin.
Despite its relative anonymity, MIT’s CERN is
far more important than its physical namesake. The latter merely informs us
about the fundamental nature of the universe. MIT’s CERN,
on the other hand, shapes our lives today, because the discoveries it makes
dramatically affect economic policy.
CERN, which in this case
stands for “Crazy Economic Rationalizations
for aNomalies”, has discovered many important sub-economic
particles in the past, with its most famous discovery to date being the NAIRU,
or “Non-Accelerating Inflation Rate of Unemployment”. Today’s newly
discovered particle, the FERIR, or “Full Employment Real
Interest Rate”, is the anti-particle of the NAIRU.
Its existence was first mooted some 30 months ago by
Professor Larry Summers at the 2013 IMF Research Conference. The existence of
the FERIR was confirmed just this week by CERN’s
particle equilibrator, the DSGEin.
Asked why the discovery had occurred now, Professor
Krugman explained that ever since the GFC (“Global Financial
Crisis”), economists had been attempting to understand not only how the GFC
happened, but also why its aftermath has been what Professor Summers
characterized as “Secular Stagnation”.
Their attempts to understand the GFC
continued to fail, until Professor Summers suggested that perhaps the GFC
had destroyed the NAIRU, leaving the ZLB
(“Zero Lower Bound”) in its place.
This could have happened only if there was a mysterious
second particle, which was generated when a NAIRU
equilibrated with a GFC. Rather than remaining in
equilibrium, as sub-economic particles do in DSGEin, NAIRU
apparently vanished instantly when the GFC appeared.
Something else must have taken its place. DSGEin was unable to help
here, since it rapidly returned to equilibrium—while the real world that it
was supposed to simulate clearly had not.
CERN’s attempts to model
this phenomenon in DSGEin were frustrated by the fact that a GFC
does not exist inside a DSGEin—in fact, the construction of the DSGEin
was predicated on non-existence of GFCs.
The ever-practical Professor Krugman recently suggested a
way to overcome this problem. Why not turn to the real world, where GFCs
and its generic particle family, GDs (“Great Depressions”),
exist in abundance, and feed one of those into the DSGEin?
Unfortunately, the experiment destroyed the DSGEin,
since the very existence of a GFC within it put it through an
existential crisis. However, before it broke down (while mysteriously singing
the first verse of “Daisy,
Daisy, give me your answer do”), the value for
the NAIRU in DSGEin suddenly turned negative.
This led Professor Summers to the conjecture that perhaps
there was a negative anti-particle to the NAIRU, which he
dubbed the FERIR.
Lacking a functional DSGEin at the time, Summers
fed a GFC into the older SLIM equilibrator
lovingly maintained by Professor Krugman—and he discovered that the NAIRU
took on a negative value there. Since the NAIRU cannot be
negative, Professor Summers realised that he had discovered a new
particle—the FERIR. When the FERIR interacted
with a ZLB, the outcome was Secular Stagnation.
Professor Summers—who expects to receive the Nobel Prize
for his discovery—had some harsh words for critics who had rubbished the very
attempt to explain the GFC using a sub-economic particle
equilibrator.
“They accuse us of adding ‘epicycles’ to our models to
make them fit the data. That’s nonsense: that’s so 15th century.
We’re way beyond that now,” sneered Professor Summers at length. “These days,
we add new fundamental particles to our sub-economic menagerie: that’s way
more sophisticated.”
The FERIR may now help economists
understand the persistence of the ZLB, which has confounded
all predictions to date. Having expected the ZLB to evaporate
and be replaced fairly rapidly by an NRI (“Natural Rate of
Interest”), economists have been flummoxed by its persistence—eight years now
and counting.
“We have shown that the FERIR
equilibrates with and maintains the ZLB,” Professor Krugman
explained. “So Larry’s discovery is really, really important”.
Now that economists have explained the persistence of the
ZLB, they can now turn their attention to understanding its
perverse effects. The real problem of the ZLB for economists
has been that it inverts the status and behaviour of all other sub-economic
particles. In particular:
- Growth, which was high, is now low;
- Inflation, which was bad & everywhere, is now good & nowhere;
- CBs (“Central Banks”) which prevent inflation, now try to cause
it; and
- HMDs (“Helicopter Money Drops”) which were mad, are now sane
These inversions are causing real problems for
economists, who find themselves arguing for policies they used to oppose.
Professor Summers hopes that knowledge of the existence of the FERIR
will make it easier for economists to argue that night is day and rainbows
are grey, as they provide policy advice in these troubled times.
POSTSCRIPT: Written with the inspiration of Axel
Leijonhufvud’s brilliant parody “Life Among the Econ” firmly in mind.
POST-POSTSCRIPT: The NAIRU—the
“Non-Accelerating Inflation Rate of Unemployment”—was a fiction of Milton
Friedman’s imagination, and countless hours were wasted by economists trying
to calculate it. I fully expect a new generation of economists to waste their
time trying to calculate the FERIR as well.
POST-POST-POSTSCRIPT: The serious intent to this parody
is the observation that the approach to economics that failed to anticipate
the GFC—and that even believed such events were impossible—is
unlikely to be able to advise what to do in the aftermath to the GFC.
We need a new theory, not merely a new fictional acronym in the fantasy
universe of mainstream economics.
POST-POST-POST-POSTSCRIPT: This post was originally on
Forbes, where it had reached almost 20,000 reads after about 12 hours. Then
Forbes took it down because:
As a general rule we don’t allow contributors to post
parody pieces on the site, because being posted under the Forbes banner
results more often than not, in confusion. It’s uncommon that the argument
for posting such a piece rises to the level of overcoming the concerns that
arise.
In this case, we have a number of contributors and
staffers on the science beat who cover the real CERN and we don’t want to be
in a position where our readers can’t trust if their headlines are about real
discoveries/events.
Personally I would prefer if they’d simply edited the
headline to include the word Parody. So I’m posting this one here until I
decide where else to place it.
