SimpleGifts
Literotica Guru
- Joined
- Jan 9, 2004
- Posts
- 1,451
I watched Alan Greenspan hawking his new book on The Daily Show last week, and caught this pretty bold assertion that he made...not too many blogs or outlets picked it up, it seems. Granted, he said a lot of other noteworthy things, so maybe it got lost in the shuffle:
Greenspan: “I’ve been dealing with these big mathematical models of forecasting the economy, and I’m looking at what’s going on in the last few weeks. … If I could figure out a way to determine whether or not people are more fearful or changing to more euphoric, and have a third way of figuring out which of the two things are working, I don’t need any of this other stuff. I could forecast the economy better than any way I know.
“The trouble is that we can’t figure that out. I’ve been in the forecasting business for 50 years. … I’m no better than I ever was, and nobody else is. Forecasting 50 years ago was as good or as bad as it is today. And the reason is that human nature hasn’t changed. We can’t improve ourselves.”
Stewart: “You just bummed the [bleep] out of me.
(See Real Time Economics )
This is a pretty big thing for the former Fed chairman to admit. All of the work that's gone into quantitative economic forecasting--which is the foundation of the trading strategies of many of the high profile hedge funds that have gone into meltdown recently--and it's pretty much worthless? The Fed claims it can regulate markets by moving interest rates, but it really has no clue about how the markets will actually move?
The really interesting thing about this passage is that Greenspan lays it out quite simply. Economics is about people. Psychology, and even mass psychology, is very difficult to forecast. The discipline of economics makes a lot of assumptions that discount psychology--for example, markets are assumed to be populated by investors who have 'perfect information' (all investors know everything about every market instantaneously). Economics like Herb Simon came up with socio-economics to turn that postulate on its head--theorizing based on 'bounded rationality' for example. Economics is pretty much like Newtonian physics--great for analyzing and explaining phenomena in language for a textbook, but unable to actually capture the true mechanics and intricacies of the real world. What we need is the economic equivalent of quantum mechanics--and we aren't even close yet.
The fact that the man who ran arguably the most powerful economic institution in the world for 20 years essentially admitted that economics is fundamentally and fatally flawed...now THAT is news, to me.
Anyone else?
SG
Greenspan: “I’ve been dealing with these big mathematical models of forecasting the economy, and I’m looking at what’s going on in the last few weeks. … If I could figure out a way to determine whether or not people are more fearful or changing to more euphoric, and have a third way of figuring out which of the two things are working, I don’t need any of this other stuff. I could forecast the economy better than any way I know.
“The trouble is that we can’t figure that out. I’ve been in the forecasting business for 50 years. … I’m no better than I ever was, and nobody else is. Forecasting 50 years ago was as good or as bad as it is today. And the reason is that human nature hasn’t changed. We can’t improve ourselves.”
Stewart: “You just bummed the [bleep] out of me.
(See Real Time Economics )
This is a pretty big thing for the former Fed chairman to admit. All of the work that's gone into quantitative economic forecasting--which is the foundation of the trading strategies of many of the high profile hedge funds that have gone into meltdown recently--and it's pretty much worthless? The Fed claims it can regulate markets by moving interest rates, but it really has no clue about how the markets will actually move?
The really interesting thing about this passage is that Greenspan lays it out quite simply. Economics is about people. Psychology, and even mass psychology, is very difficult to forecast. The discipline of economics makes a lot of assumptions that discount psychology--for example, markets are assumed to be populated by investors who have 'perfect information' (all investors know everything about every market instantaneously). Economics like Herb Simon came up with socio-economics to turn that postulate on its head--theorizing based on 'bounded rationality' for example. Economics is pretty much like Newtonian physics--great for analyzing and explaining phenomena in language for a textbook, but unable to actually capture the true mechanics and intricacies of the real world. What we need is the economic equivalent of quantum mechanics--and we aren't even close yet.
The fact that the man who ran arguably the most powerful economic institution in the world for 20 years essentially admitted that economics is fundamentally and fatally flawed...now THAT is news, to me.
Anyone else?
SG
