Something is wrong in Voodoo ville……
“It’s not fair man. I have 3 kids to feed” says Harry Mumbasa, almost in tears. Indeed, it heart wrenching to see, how many Voodoo priests have had their whole career ruined. Now days, when people want bullshit mumbo jumbo, they go to Economists, not Voodoo priests. “I haven’t had a single client since last 2 years.”
The great quackery begins
The story starts in 1987, when there was one of the biggest market crashes, which almost brought the western economy to it’s knees. One of the main causes of this was the Modern Portfolio theory, which had been used extensively in the last few years. Now what would you do in this situation?
A. Say to yourself “Hey man, we maybe wrong here.” Go back to drawing board, re-think everything.
B. Give a Nobel prize to those who invented the theory, which had caused one of the largest crash in history, just three years earlier. Because you have amnesia, and you find it hard to remember what you ate for breakfast, let alone what happened 3 years ago.
If you thought the answer is B, congratulations, you can work for the Bank of Sweden, which gives the Bank of Sweden award in memory of Nobel, wrongly called the Nobel prize in economics.
Then in 1997, they gave the “Nobel” prize in Economics to 2 guys called Merton and Scholes, who used their cool theory to start a company to invest in the market. After all, they had just won the Nobel prize, right? How could they fail?
Yet they lost $4.6 Billion, and almost brought about a recession.
Voodoo Economics comes of age
This emboldened the Economists even further, who had now found a fool safe way to fool the public, and get rich at the same time. So they started forcing MBA students to learn these advanced theories. “We have to teach them something, you know? It’s like if a pilot doesn’t have a map of the Himalayas, given them a map of Saudi Arabia.(1) It’s better than having nothing, you know?” said Dr Get Rich Quick, head of Economics at Blarvard University.
Indeed, so successful have the Economists been at making up bullshit, that they have almost destroyed the Voodoo industry. Voodoo priests now find it hard to get any clients, whether it is people who want to kill their neighbours with black magic, or people who want to get rich quick.
Read in part 2 why.
1. Thanks to Nassim Taleb for this delightful example.
Note To any Economists: Yes, I know there are other fields of Economics other than EMH. And no, I don’t care. When these other fields become orthodoxy, then I’ll talk about them.
Note to any Voodoo priests: I apologise in advance for comparing you to Economists. Please don’t create a doll of me or do any juju on me.