5. Nobody really understands the world economy.
Sad, but true. For all the math and the theoretical models, economics remains an intellectual discipline rather than a predictive science. That is unlikely to change. Just as all the computer models in the world can’t tell you what the stock market will do tomorrow, all the world’s economists working together can’t tell you when the next crisis will come ”” or what you can do to avoid it. At any given point of time there will be economists predicting a crash and economists predicting good times along with every variant in between; some of them are bound to be right but so far this looks more like timing and luck than the repeatable and testable result of demonstrably better methods. The economics profession is full of dogmatic and pompous heretic hunters of all stripes, but as a group they are no better collectively at prediction than a similarly dogmatic and contentious group of medieval clerics. This doesn’t mean that economics is bunk (any more than theology is bunk); systematic and rigorous reflection on human economic activity yields many useful insights and an education in basic economic ideas remains an essential piece of intellectual equipment for any serious person.
Economic outcomes remain hard to predict not because economists are stupid (they aren’t, by and large) but because the world economy is continually in flux. Facts change; China rises, new industries emerge, under the influence of new economic ideas, central bankers and investors change the way they behave. Investors and entrepreneurs have mood swings: too optimistic in 2007, too pessimistic in 2008. All this change feeds back into the world system in unpredictable ways. Economics can help us understand what is happening and give us more sophisticated tools for investigating the unknown ”” but it cannot protect us from uncertainty and risk. The “unknown unknowns” will always be with us.
This means, among other things, that we are no closer to eliminating panics and crashes than the Dutch were in the wake of the Tulip Bubble.
I so enjoy reading this guy. His insights on economic policy are insightful, and I have appreciated his foreign policy reflections. Most of all, though, his thoughts on the state of TEC have really struck home. This, despite his liberal take on sexuality. I am always wiser (or at least I esteem myself so) for having read him. His blog is well worth a daily read.
Stephen+
This is a significant article, well worth reading and pondering. Mead steps back from an emotional and hysterical response to the changing economic realities and provides what might be described as a measured and stable understanding of the sort of world in which we live. Where there are no easy answers, he makes that very clear. I found his words helpful and thoughtful.
I would add #11 – “Spend (or commit to spend on behalf of future generations) no more than you honestly and realistically expect will be brought in”
As for #4, would someone please pass that on to the current regime in Washington? They seem not to have gotten the word.