[OPE] Forecasting

Pondering the bubble thing, the FT's Wolfgang Munchau makes an important
point in an substantive article which was however really too brief to hit
the spot exactly:

"The workhorse economic forecasting models used by central banks are built
in such a way that they cannot capture financial shocks and bubbles. This
makes them worse than useless in?a world characterised by persistent
financial instability. An analysis of monetary conditions and financial
flows can provide at least a useful complement to now defunct models."
http://www.ft.com/cms/s/0/a1853610-c196-11de-b86b-00144feab49a.html?nclick_check=1

But really you know I think that's not quite fair on the bankers, who do
make pretty careful analyses of monetary conditions and financial flows. I
know this for a fact because the Dutch Central Bank does them. They also
employ people doing pretty weird sorts of analyses, but okay people have to
learn. It is true that the commercial bank scene became a bit gooey and
euphoric for a while, but analysis is also done there. At best you can say
people at banks were looking at the wrong things, with wrong assumptions and
with data which don't really tell you anymore what you need to know, because
it is based on a classification and categorization system which is out of
date in the 21st century. And they have a certain idea about what "economic
policy" means. Of course, the lust for high yields is impetuous until the
bubble has popped, the theories follow the money.

The other thing is that the neoclassical ideology of how the economy "works"
simply doesn't correspond to how the economy actually works, and that is the
deeper scientific problem. Traders know this very well, and they are
constantly inventing new concepts and buzzwords to describe what is really
going on, never heard of in in official economics, and which only gradually
filter into official economics. The truth is, many people have degrees in
economics, but there are proportionally rather few practising economists in
the scientific sense and a lot of economic theory is simply not usable in
practice, it is only a sort of vague description of something that happens,
that hangs on data which statistics departments provide.

Who is a real economist? For example, John Eatwell is an real economist.
Mainly, a degree in economics means you can can calculate and compute in a
politically correct way, it is a sort of certificate in
Friedmanism-Krugmanism-Mao Ze Dong Thought (or whatever). The army shoots
people, economists shoot equations. Economics ideology infiltrates
bureaucracies and everybody starts to talk "inputs and outputs", but since
such concepts can be defined in innumerable different ways, one person's
economics is another person's leftovers from yesterday. The bigger problem
is usually "why we are doing what we are doing." The answer is usually "to
make money". Making money is necessary, but we all know if you get too
obsessed with that, the real meaning of what's going on in social life
escapes you. I have slipped up there so I know. And the social world hits
back with a vengeance, since nobody can escape from the necessity for social
cooperation, even if they believe they live in a competitive cloud
cuckooland. Marx said it, lots of people said it, but somehow the lucre
still seems to be able to lead us astray. Well anyway I am starting to sound
like a preacherman so I better stop this.

If you get a bit dragged by the Teutonic rigour of the Munchau case, the
lovely miss Sayuki Matsumoto can explain it all more simply:
http://www.youtube.com/watch?v=--xRampQYNo

Carried
Upon a soft whisper
Of a breeze,
Bubbles float aloft
Delighting little children
With such simple pleasures;
A kaleidoscope
Of colours
Swirl around,
Crazy circles
In rich fluidity
Of amethyst
And jade,
Sapphire
And gold.
Sadly, soon
To be obliterated,
Erased out of existence.
Lips tremble,
But smiles
Return again
As soon as
Lips are pursed,
A gentle breath
Gives birth
To another
Gem of wonder...
A Bubble,
A Child's rainbow globe;
Tenuous, momentary,
But a dream
Of beautiful fragility
That captivates
A sense of wonder.
Generations come and go
But this thrill will never die.
http://www.everypoet.net/poetry/blogs/poetmaster/blowing_bubbles

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Received on Mon Oct 26 15:55:11 2009