The main thrust of his post is "look at this idea that no economists seem to be aware of". He makes his point by googling for this term that he made up.
He does not appear to be an Econometrician, nor a Statistician (I can't find his CV, which is odd), so the most likely answer is that he is wrong, and that this is a well understood phenomenon for which he doesn't know the proper technical term (viz., Multicollinearity).
This quote from his blog post sums it up for me (emphasis mine):
"And it really bugs me that people who know a lot more econometrics than I do think that you can get around the problem this way, when you can't"
[edit] - @cynicalkane - we are in violent agreement on the core theory, but equally violent disagreement on the extent to which his link-baity title & appropriation of Friedman's name is academically disingenuous.
That's a strange thing to complain about, because it's accepted that outsider criticism of econometrics is valid, including among econometricians. It's common to question the assumptions even if you don't understand the machinery. There's been a lot of it in particular about market modeling in the face of the subprime mortgage collapse, both from economists and non-economists.
I'm also not sure why you keep blasting him for not using the word "multicollinearity", when he's talking about a fairly specific kind of hidden variable anyway, and one that you simply can't pluck out of small macro data sets ex nihilo especially in the face of the Lucas critique.
For instance, in this blog post, http://ipeatunc.blogspot.com/2012/08/its-not-just-data-its-a... , a blogger discusses Milton Friedman's thermostat and then, in the comments, discusses deliberately leaving technical terms such as multicollinearity out of the post.
He does not appear to be an Econometrician, nor a Statistician (I can't find his CV, which is odd), so the most likely answer is that he is wrong, and that this is a well understood phenomenon for which he doesn't know the proper technical term (viz., Multicollinearity).
This quote from his blog post sums it up for me (emphasis mine):
"And it really bugs me that people who know a lot more econometrics than I do think that you can get around the problem this way, when you can't"
[edit] - @cynicalkane - we are in violent agreement on the core theory, but equally violent disagreement on the extent to which his link-baity title & appropriation of Friedman's name is academically disingenuous.
Shall we call it a day?