Andrew Smithers: Lookout! Bad Models Equal Bad Outcomes

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Andrew Smithers: Look Out! Bad Models Equal Bad Outcomes

September 14, 2022

“But I must say I welcome any qualified economist who has the guts to say, “Smithers’ views are worth debating. I’m not going to say that Smithers is right and the consensus is wrong, but we do need a debate.” That will be the first step. I think that people are very frightened of debate, and the fear that they have is one of the reasons why we need it so much. They are frightened because what they have been teaching and writing papers on will look to have been badly wrong. And to face that is a very great challenge.” — Andrew Smithers

Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany. 

I’m looking forward to our guest today. Dave, you’ve interviewed him before. In fact, the last time you interviewed him was in Scotland. There was a harp in the background—one of my favorite backgrounds to one of your talks—but it’s always good to look back and say, “What have I learned in my life?” But this is a man who’s got five or six decades of not only asking himself what he’s learned, but testing it by model, and disqualifying a lot of the models that people are following right now that have just proven themselves to be wrong. I’m talking about Andrew Smithers.

David: He offers a model to complement or perhaps upset the neoclassical economic model which has been so popular in recent decades. And I find myself, after having gone through Valuing Wall Street, one of his earlier books, and now The Economics of The Stock Market, I find myself a man in debt. I’m in debt to Andrew Smithers at an intellectual level for his contribution, and feel the same way as I’ve read through [Giulio] Gallarotti and Harold James and Robert Higgs and Russell Napier and [Tomas] Sedlacek and Robert Jervis. Andrew Smithers is in that mix. 

And from the standpoint of market dynamics and valuation and appreciating the long patterns that you see within the stock market, how do we explain them? How do we understand the behavior of the decision-makers within an economy? Whether it’s a household or corporation or a government. He puts many of these things into perspective. And so without further ado.

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I may be hopelessly nostalgic. I miss Alan Abelson’s articles in Barron’s. I miss the round table discussion from the same paper, including Felix Zulauf and Fred Hickey and Bill Gross. And I miss Andrew Smithers’ routine articles in the Financial Times. But I love it whenever retirement is more of a suggestion than a reality. Because here you are, once again, Andrew, writing another book. You just published The Economics of the Stock Market, and I’ve really enjoyed it. 

I would argue your challenge to the consensus views is more important now than ever before. [Two weeks ago] in our commentary, we discussed how [Thomas] Kuhn describes a paradigm as broken, but still stubbornly adhered to. And so you’re in this situation where anomalies accumulate until a fresh set of ideas is finally welcomed. And I hope your ideas are part of the refreshed and rewritten economic consensus. 

Thank you for joining us again. I think the last time we spoke in person was at the Balmoral in Edinburgh. I apologize today, we don’t have harps, and there’ll be no slipping away later for a single malt with Russell Napier, but welcome.

Andrew: Thank you very much, indeed. Very nice to be on the telephone with you.

David: We experienced a disconnect during the global financial crisis between professional economic forecasting and the realities of a financial sector and financial markets meltdown. While many lessons were learned, there still seems to be a detachment between finance and economics. And in your latest book,