by Tyler Cowen
on August 12, 2009 at 12:34 pm
…Your Majesty, economists did something even better than predict
the crisis. We correctly predicted that we would not be able to predict
The link is here.
Spirited, but unconvincing.
Mike, maybe he’s suggesting that the power of markets is that they frequently give us things nobody could have predicted. Sometimes those things are crises, but on net, it’s most definitely better than if they only gave us the things we could have imagined.
you can do a lot more on that premise, if you assume that regulators won’t be able to regulate when the pressure to not regulate is the greatest and create policies that attempt to circumvent this weakness (3 branches of government). keyword – attempt.
What about the first stimulus?
No, the FIRST one.
While it may not be pleasing to many, I think this quote really says a lot. Some people seem to want economics to become “scientific” like the path of throwing a ball in the air, but I think it will always remain elusive and probabilistic like quantum mechanics. This also affects how we should respond to problems. We may put a .05 probability that a bad economic event will happen, but that doesn’t mean we should have governments seize the banks and drop a 10,000 page regulatory bomb on our economy to avoid it. Of course, after the bad event happens all the “scientists” will come out of the woodwork saying how free markets failed, and we should have done so much to prevent it from happening. It’s always nice and neat to create some explanation of why the ball you threw straight up in the air flew 100 yards away, but it’s difficult if not fundamentally impossible to predict it.
Easterly is one of my favorite economists, and his book “The White Man’s Burden” forever changed my economic thinking.
I really like reading Derman.
He is a very smart guy who understands quantitative finance from a nuts and bolts perspective and doesn’t get carried away with the theory.
And his view is exactly like mine with regard to the EMH. It is really really really hard to predict finacnial markets and even if you have a great track record it is hard to know how much was skill and how much was luck. Markets may not be efficient by some abstract standard but they are also hard (impossible) to predict which is my dumbed down version of the EMH.
mises predicted the sandpile would collapse over and over 100 years ago.
Geologists can’t predict earthquakes either and that is certainly not a slap against geology. Pointing out the existence of a risk without being able to precisely quantify it or predict when the risk will materialize is still useful.
I don’t know Kebko, I can imagine quite a bit.
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