If you have not already done so, you may wish to read the
Introduction to Gnomica.
Sunday 13 January 2013
Read gnomica 1-200 here!
The only function of economic forecasting is to make astrology look respectable.
John Kenneth Galbraith (15 Oct 1908 – 29 Apr 2005)
This world-famous economist whose books everyone was reading when I was in college in the late fifties and early sixties surely knows what he is talking about, and his wry (the man definitely had a sense of humor) observation about economic forecasting is not entirely without relevance in the roiling context of the fiscal cliff that we did not just recently plunge over, the deficits looming throughout the country’s states and cities, and the steadily mushrooming national debt with which we are so blithely gifting the coming generations of Americans.
But never mind all that!
The back-and-forth gamesmanship in Washington, D.C. in the course of late December is not entirely without similarities to an Abbott-Costello routine (minus the laugh track!). Remember that “Who’s on first?” thing? Is that really the kind of confusion and misunderstanding and nonsense what our august legislative machinery has become? Yet to see is how it will all hold up in the weeks and months ahead – so far it seems to be doing not badly.
Galbraith’s view of economic forecasts (and, by implicit comparison, non-forecasts) is rather unequivocal, and it is hard to fault him. How many economic disasters have there been since his day – the lethargic early seventies, the crashing mid-eighties, the digital dive around Y2K, the easy money and subprime mortgage crisis with its housing debacle of the early 2000s, the 2008 meltdown – and how many of them were forecast and action taken to avoid them? I guess we wouldn’t have had the rough patch as it were of recent years if those who supposedly knew what was what, economically speaking, had pushed reasonable agendas to obviate the catastrophes.
The quants had not yet come into their own back in Galbraith’s day. But my uninformed side-line sense is that their delusions about the application of the very real rigors of mathematics to something as fuzzy and amorphous as the wishful thinking of human beings (who, knowing neither physics nor the higher math, gleefully bought into those mathematicized algorithms about human economic behavior) probably formed about as reliable a basis for economic forecasting as the astrologer’s peek into a future predicated on the basis of the motions of the planets motions and their various juxtapositions.
Certainly, in the event, they really didn’t predict much of anything, did they? I mean, just look at what happened over the past decade plus! After all, if astrology is, according to Galbraith, respectable by comparison, what can one possibly say about the “function of economic forecasting”?
The idea that you can — somehow — whatever it is — on the basis of some specialized and sophisticated means (flight of birds, color of livers, alignment of planets, tea leaves, mathematics) — tell detailed specifics about particular future events is to my way of thinking still largely as big a fantasy as it ever has been. At least, it’s just not the way I see the world, and as painful and distressing as it may often be to accept, the fact remains that one lives secure in the knowledge only that the world is uncertain and unpredictable.
Surely that was Galbraith’s unassailable point.
A cliché, yes, of course it’s a cliché, but it doesn’t hurt affirmatively to remind oneself from time to time of this inescapable fact.