Everyone Believes It, but Most Will Be Wrong

The headline was too much to resist: "Analyst says stocks may fall another 50%."

I go to great lengths to avoid these prognostications, but I couldn't help myself. I clicked. It was a video of a well-dressed stock picker, ready to predict the future with unflappable conviction.

We haven't seen anything yet, he warned. The coming months will shower the economy with destruction on par with the Great Depression. Stocks will fall another 50%.

Who was this man? I hadn't a clue. It didn't matter. He seemed to know the future. What if he were right?

I turned to another source, this time CNBC. There, another well-dressed analyst had more bad news. "Unfortunately, I think the markets are still going lower," she warned. The Dow could fall to 4,000. "I hate to say it," she added for good measure.

It was March 2009. Stocks bottomed that week, beginning one of the largest rallies in modern history.

The mass failure of seeing the impending rally in 2009 wasn't a one-off event, of course. To be skeptical of experts' forecasting ability, all you had to do was look two years prior. Economists "say it is unlikely that the U.S. will go into a recession," one paper reported in late 2007.

"[W]e don't expect a recession in 2008," opined another executive.

One December 2007 article was titled "The Great Recession of 2008?" "Ah-ha! They nailed it," I thought. No luck.

"It probably won't happen," the article begins. "On balance, it is not likely that the United States will experience a recession in 2008."

In the 1980s, psychologist Philip Tetlock began one of the most important research projects of the past three decades, studying how experts make predictions, who gets things right, and who gets things wrong. His inspiration came from watching experts predict the future of the Soviet Union -- an event that very, very few got right. Notably, most of those who misjudged the event wouldn't even admit that they got it wrong. "It was hard to avoid the suspicion that what did or did not happen was almost irrelevant," Daniel Gardner writes in his book Future Babble. No one cared, or remembered, what experts said in hindsight, which is what made Tetlock's work so groundbreaking.

Tetlock eventually collected a database of more than 25,000 expert predictions, which he used to write what has become the bible of predictive science, the book Expert Political Judgment. The book draws one big conclusion: Most expert predictions are the equivalent of random guesses.

But, as Tetlock notes, "[t]here's quite a range. Some experts are so out of touch with reality, they're borderline delusional. Other experts are only slightly out of touch. And a few experts are surprisingly nuanced and well-calibrated."  

The main distinction is that those who make the best predictions have a collection of little ideas and are always incorporating new information into their outlooks, while those making the worst predictions have one grand theory that they trumpet through thick and thin. Tetlock calls the former foxes, the latter, hedgehogs.

Pride of the wishy-washy
Foxes -- a rare, peculiar bunch -- share several other traits. One is that they can change their mind with ease.

During the 2004 presidential election, John Kerry was accused of being a flip-flopper. Most of the attacks stemmed from a comment he made describing his position on funding the Iraq War with an $87 billion appropriation. "I actually did vote for the $87 billion, before I voted against it," Kerry explained, which his opponents pounced on as proof that he was dishonest, senile, or both. In any case, being a flip-flopper was clearly a bad thing, his opponents said.

CNBC host Larry Kudlow demonstrated a similar attitude while interviewing Arianna Huffington in 2009. "Unlike you," Kudlow said, "I have never changed my stripes. You were a conservative Newt Gingrich supporter, then you flip-flopped into a liberal. I stay the course. ... I have not changed my point of view for my entire adult life."

Think about these views for a second. They imply that changing your mind should be looked down upon, and that it is somehow virtuous to stick with a position even when you believe that it's no longer valid.  

There's one big reason why this is nonsense and why those who make the best predictions update or even change their views with ease: As journalist James Fallows once remarked, "What looks like tomorrow's problem is rarely the real problem when tomorrow rolls around." In other words, the world is fundamentally unpredictable. Things happen that no one could have seen coming. If you can't accept that when things change your opinions might need to change, too, you will be left anchored to a reality that no longer exists -- and likely making terrible predictions.

This might sound oxymoronic. How can those who make good predictions change their minds? Because absolutely no one is always right. The goal when making predictions isn't perfection; it's a relatively high batting average. Cutting your losses, learning from mistakes, and preparing for the next pitch rather than swinging wildly at balls that fly over head is how you get your batting average up. As the old saying goes, "It's far better to be mostly right than precisely wrong."

A good example of someone who's not afraid to change his mind is Bill Gross of PIMCO. Earlier this year, Gross became bearish on U.S. government bonds, selling all of his fund's Treasury holdings and betting against them through derivatives. Almost immediately, it was clear that this wasn't a wise move. So he reversed everything, jumping back into Treasuries.

I've chided Gross for the move because it smacks of market timing. Still, it's commendable that he admitted his mistake -- "we try to be very intellectually honest and honest with the public," he said -- rather than being steadfast just for the sake of being steadfast, as if that somehow made his investors wealthy.

Self-skepticism
Foxes are also unique in that they're skeptical of themselves. Yale economist Robert Shiller is a good example. Shiller has a nearly impeccable record of spotting bubbles. His 2000 book, Irrational Exuberance, warned that stocks were overvalued. He updated his research in 2005, this time warning that real estate was overpriced. Both times, he nailed it. Not only have Shiller's calls been right, but he personally developed the metrics that other analysts use to gauge whether assets are in bubble territory. He is, in a sense, a sort of godfather of bubbles. If someone has the right to speak with authority on where markets are headed, it's him.

And yet when Shiller talks, he's cautious almost to the point of doubtful. "I do not know the future, and I cannot accurately predict the ups and downs of the market," he writes. I interviewed Shiller last fall, and the most committed statement I could get out of him is some version of "maybe" or "I don't know." When asked when housing might turn around, he responded: The market "could take years to be cleared out. But even that fact does not rule out a possible continuation of the rebound. These are just exceptionally uncertain times." He's quick to point out where things stand historically, but he rarely attaches those views to a prediction of what might happen next -- the kind of predictions those with poor track records give out like candy.

It's remarkable, really: The man whose background makes him uniquely qualified to make predictions actively shies away from them. He's skeptical of himself.

George Soros follows the same philosophy. Soros became one of the richest men in the world predicting what financial markets will do next. But ask him about his predictions, and you'll quickly notice that if there's one person skeptical of George Soros' predictions, it's George Soros. "I think that my conceptual framework, which basically emphasizes the importance of misconceptions, makes me extremely critical of my own decisions. I know that I am bound to be wrong, and therefore am more likely to correct my own mistakes."

Daniel Gardner points out an old Arabic saying in Future Babble tying this all together: "Those who claim to foresee the future are lying, even if by chance they are later proved right." Those who ultimately make the best predictions aren't smarter than everyone else. They're just more humble, only making broad predictions if and when the stars align, updating their views or changing their minds frequently, and having a mindset that makes them totally comfortable with being wrong. The problem is that these people aren't very exciting to listen to, so the media pay little attention to them. But hedgehogs, who loudly insist that they know exactly what the future holds? The media love those folks. It's agonizing to hear that those who make the worst predictions get the most media coverage, and vice versa. But that's exactly what Tetlock found.

Who's next?
"When is the last time everyone predicted a recession in advance?"

That was the smart question someone asked on Twitter a few weeks ago. The short answer is: never. Yet how many experts are now forecasting a recession? And how many of us believe it?

The value in researching bad predictions is not to point fingers at those who have gotten it wrong. It's to point fingers at those who listen to and put faith in those predictions, assuming that suddenly, this time, experts can accurately see the future when history shows, conclusively, that they can't. It's not the experts, but the people who listen to the experts, who are the real fools.

Think of it that way, and some really interesting questions arise. What popular predictions are experts making today that might not come true? What does everyone believe today that will end up being totally wrong? Because we know some things will fall into that category in hindsight. I find that fascinating to think about.

So go down the list of current popular predictions: Unemployment is going to stay high for years; national debt will rise precipitously; stocks will never be great again; inflation is going to surge; China owns the future.

Some of these predictions are almost certain to never come true. Which ones? I don't know. No one does. That's the point.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 18, 2011, at 4:34 PM, Thaeger wrote:

    Everything wrong with political/economic discourse in one graph:

    http://www.smbc-comics.com/comics/20110308.gif

  • Report this Comment On October 18, 2011, at 4:37 PM, stan8331 wrote:

    Another great article, Morgan. Persistent certitude is one of the surest possible signs of snake oil being sold, yet the media invariably flock to the "expert" who gets it wrong 90% of the time when the stars align and his/her never-changing predictions briefly match up with reality.

  • Report this Comment On October 18, 2011, at 6:53 PM, devoish wrote:

    Where is the conviction? If you expect me to believe anything you write you need to be more insulting to show your self confidence. Throw around the word sheeple a few times or something. And while you are at it brag about being the only school of thought or system that has been unerringly correct for eighty hundred years. This "think it looks good but we're watching events unfold" theory of investing you espouse is for complete losers. Who has time to not just bull ahead until they arrive somewhere? Better to join up in a large group and keep pushing out the same idea until someone else comes along afterward and makes you right, or at least feel right. I don't know how you ever expect to get in first if you refuse to pile on. This whole article is just flowery junk. and where is the balance anyway? If you are going to type something you could at least type something else that disagrees with your thesis even if you disparage them. I don't want to hear some seemingly rational thought without hearing someone elses seemingly rational thought. In fact if you right an article about rational decision making it should be balanced by a looney idealogue so I can make a choice who sounds more self confident. And include their pictures so we can tell who is smarter.

    Thats enough. I cannot believe i even responded to such drivel.

    ALL CAPS dam it!

    Best wishes,

    Steven

  • Report this Comment On October 18, 2011, at 6:59 PM, TMFHousel wrote:

    ^ You spelled write wrong.

  • Report this Comment On October 18, 2011, at 7:06 PM, TMFBiggles wrote:

    I'm always right, except when I'm not.

    Great article, Morgan.

    Also, great link, Thaeger. I love that site.

  • Report this Comment On October 18, 2011, at 9:25 PM, FoolishRaoul wrote:

    A foolish consistency is the hobgoblin of little minds

    I think what's remarkable is how people accept one set of predictions, they turn out to be wrong, then they embrace a different set of predictions. When will everyone realize that nobody KNOWS anything, we're all just grasping in the dark, and those who have the tightest grip at one point might not at another. It's just like atheists who are so arrogantly disdainful of anyone who is even open to the possibility of the existence of God. I'll think, OK, why don't you explain existence to me then. Why don't you explain to me what happens after we die? Did you forget that you don't know either? Just because I might be wrong doesn't mean you're right. We're all just quessing, even if we're supposedly experienced experts who have accumulated vast amounts of data. Knowledge is an illusion, understanding is an ideal

  • Report this Comment On October 18, 2011, at 10:18 PM, TigerPack1 wrote:

    Morgan,

    Nice write-up. Peter Lynch had a goal of being correct on his stock calls 60% of the time.

    Alas, I am not Peter - my predictions are correct about 30%-40% of the time. The trick is NOT to lose money when I am wrong 60%-70% of the time, while making a butt-load when I am correct.

    There are many ways to accomplish this feat, basically by investing in instruments and stocks that generally gain value over time, as opposed to decaying in price or falling in premium, while diversifying in out-of-favor sectors.

    If my math is correct, the FLASH DEPRESSION that has been developing since early summer has not really been fully recognized by Wall Street or main street. The shock and awe phase may be next during the coming 2-6 weeks of trading, as stocks discount a truly weak earnings period in 2012.

    One of my crazier ideas in September and October, is that the Greek government may be pushed aside in a military coup to restore order. That idea may play out as early as this week, as MASSIVE strikes are slated to begin in a matter of hours. In quick order, Greece would default on its loans and withdraw from the Euro. Fear would spread that Ireland, Spain, Portugal and even Italy may be forced into a similar decision.

    Soros and others are contemplating the growing odds of this scenario and its end game in the media of late. The harder Greece tries to balance its budget, the larger its deficits have and will become for a variety of reasons. (America is in trouble as we follow Greece's TOO MUCH DEBT sovereign game plan, a year or two behind them... That's comforting to know if you are a bull on stocks? Greece's stock market is DOWN - 85% the last 2 years!)

    My prediction and preparation all year for the U.S. economy and stock market entering a dire straits situation is slowly proving correct.

    Nearly EVERYONE is again jumping on the bandwagon of hope and greed the last week or two, despite the foundation of math crumbling for the economy and markets week after week. This is rather typical behavior for the markets and sentiment in the early stages of a recession. The time to buy will be "after" the honest recognition of a weak economy by Wall Street. The debate is still back and forth as to whether a recession is beginning.

    Investors and pundits are struggling and fighting to stay optimistic in mid-October 2011. When hope is truly lost and reality sets in, another 15%-20% downmove in stocks could help form a stock market bottom that lasts years, but I am arguing we are not there yet.

    Heck, I am right 30% of the time! I like my odds.

  • Report this Comment On October 18, 2011, at 10:28 PM, Frankydontfailme wrote:

    15-20% downmove? Bit too optimistic. More like 30-70%. Then we see a multigenerational low.

  • Report this Comment On October 19, 2011, at 12:14 AM, somethingnew wrote:

    Very good article Morgan. I do have to say though that I have been reading at least one MSN.com analyst's predictions that are loud and annoying but are almost always correct for years now as long as I've been reading the Fool (since 2004) and I get annoyed when I read his stuff because of his arrogance but I have to admit he has been correct most of the time and holds these "grand theories" on things. However, he is the exception to the rule and most of the so-called "experts" I have read or heard talk over the past 7 years of my personal investing experience that are loud and annoying almost always get it wrong. I'm a contrarian to a certain degree so I had to throw that one in there. I own hundreds of old Fortune mags from the 1980's that I've got off ebay and they are full of the type of people you described above and if you had listened to them back then, you would have lost alot of money. I love articles like this because it makes me think and it's clear you've done your homework.

  • Report this Comment On October 19, 2011, at 1:19 AM, isacsimon wrote:

    Great article Morgan!

    -Isac

  • Report this Comment On October 19, 2011, at 10:03 AM, XMFAimeeD wrote:

    If hedgehogs dressed better they'd be on the TV, too.

  • Report this Comment On October 19, 2011, at 10:23 AM, devoish wrote:

    Sure. Try to discredit everything I rote because of one mispelling. Once again you have completely failed to respond to the facts or provide balance from a phonetics spelling advocate. And you did not even type in ALL CAPS for emphasis. I don't know why I bother.

    Best wishes,

    Steven

  • Report this Comment On October 19, 2011, at 3:20 PM, DJDynamicNC wrote:

    ^^^^ :lol: Awesome.

    Something similar was just done for some of the most widely read political pundits:

    http://www.poynter.org/latest-news/romenesko/130485/claim-kr...

    I don't think anybody would be surprised to find that Paul Krugman leads the pack.

  • Report this Comment On October 19, 2011, at 5:11 PM, TomBooker wrote:

    "The main distinction is that those who make the best predictions have a collection of little ideas and are always incorporating new information into their outlooks, while those making the worst predictions have one grand theory that they trumpet through thick and thin. "

    When people invade my quantum field with Neo-Classicism, I try to point out that Neo-justaboutanything is based on their belief that they can predict the future. And that they always write their own ending to a story, without caring what is actually happening in the preceding chapters.

    *

    Little truths are happened upon and accumulated, before we get to the big Truth. By then , we are old and die. It's probably a good thing. Because who wants to be around to find out you were wrong.

    *

    I am always amazed at the tenacity of the prevalent belief system of our Time. No matter how it fails, and fails with ever increasing resounding noise.. we never consider that there is too much of it, and always go with our prior mistake having been not-enough of it.

    Even under the blandest of re-regulation, the Banks are behaving like a teen-ager who is having the keys to the family car taken away from him.

    But even a 16-yr-old would see some connection between his totaling of the prior family car, and having his keys taken away..

  • Report this Comment On October 19, 2011, at 10:27 PM, MKArch wrote:

    Outstanding article Morgan. I'd only add that I don't think there is anything wrong with beliefs or even strong beliefs as long as you are intellectually honest, require that facts are consistent with your beliefs and have the ability to change your beliefs when the facts clearly show your beliefs are wrong.

  • Report this Comment On October 20, 2011, at 2:56 AM, VolkOseba wrote:

    @DJDynamicNC Austrian economists were able to predict the housing bubble in 2001. Krugman didn't catch on until 2006... but that's ok, as the study didn't include any Austrian economists (Peter Schiff, Ron Paul, Tom Woods, Robert Murphy, etc.) and only went from September 2007 to December 2008. The "Conservatives" in the study, quite honestly, wouldn't know Conservatism if it bit them in the ass, and were probably making positive economic predictions because they were naïve enough to believe a Republican president was enough to keep the economy in good shape.

  • Report this Comment On October 20, 2011, at 5:07 AM, Ragingmoose wrote:
  • Report this Comment On October 20, 2011, at 9:03 AM, TMFHousel wrote:

    <<Austrian economists were able to predict the housing bubble in 2001.>>

    I'd like to reprint the quote from the article: "Those who claim to foresee the future are lying, even if by chance they are later proved right."

  • Report this Comment On October 20, 2011, at 1:34 PM, ShaunConnell wrote:

    ^That's just blind skepticism, which is no more rational than blind faith.

    If you have a theory that routinely predicts something, then you pay attention to it.

    That said, of course some predictions can and will come true -- I predict the economy doesn't completely vanish in the next 5 minutes. In five minutes, I'll be proven right, and no, I'm not lying.

    Some things can be predicted, some can't. The only question is the degree of certainty.

  • Report this Comment On October 20, 2011, at 2:28 PM, Darwood11 wrote:

    Good article!

  • Report this Comment On October 20, 2011, at 3:20 PM, MazonCreekRich wrote:

    You decry experts, but there are alternative viewpoints.

    Of course it is popular, and thus easy, to advocate thinking for oneself, deeply and flexibly, but I for one eschew this kind of popular "faddish" behavior.

    Insted, I have decided to make my life easier by just picking a couple of people and blindly believing everything they say. Sure, one can criticize this approach, but it has the virtue of freeing up more time for reality TV and MD 20-20 Red Grape. Unfortunately, my picks have been making me bounce around like Tigger. I am slavishly following Jeremy Grantham (because he is very smart and is English), Michele Bachmann (because she is a robo-babe), and Larry Summers (because he is like a big human brussel sprout; everybody hates him but recognizes he has some special value; also he said of the Winklevoss's :"One of the things you learn as a college president is that if an undergraduate is wearing a tie and jacket on Thursday afternoon at three o'clock, there are two possibilities. One is that they're looking for a job and have an interview; the other is that they are an a**hole. This was the latter case"). But my problem is that it is very difficult to simultaneously adhere to the teachings of these three intellectual leaders. So I am tending to mostly just sit around and increase my TV/MD 20-20 time.

    But that is just me. I hew my own trail, march to the beat of my own drummer, choose the unpopular path. It is not easy to be a follower, and others may opt for a different approach.

  • Report this Comment On October 20, 2011, at 4:26 PM, cashclash wrote:

    great article,

    perhaps even in a broader sense this "being wrong-thing" in concert with stubbornly not admitting you were wrong and change course accordingly, is what's so wrong with banking, public debt etcetera.

    Thesis: when many avocate crisis, the probability of a crisis will diminish?

  • Report this Comment On October 21, 2011, at 1:00 AM, VolkOseba wrote:

    "<<Austrian economists were able to predict the housing bubble in 2001.>>

    I'd like to reprint the quote from the article: "Those who claim to foresee the future are lying, even if by chance they are later proved right.""

    Perhaps it's worthy of note that they also predicted the crash of the NASDAQ bubble... oh yeah, and the great depression. No crystal ball is needed to see the future-- the ability to see the over-expansion of credit is all you need. If the Fed causes too much malinvestment, it will necessitate a crash, the only question is the timing.

    Of course, ironically, I don't think an "expert" such as yourself would be open to doubting your own opinion.

  • Report this Comment On October 21, 2011, at 2:08 AM, VolkOseba wrote:

    Oh, and once again... DJDynamicNC... I can't resist this.

    http://www.informationliberation.com/?id=32412

    Krugman was calling for the very policies which led to the housing bubble...

  • Report this Comment On October 21, 2011, at 1:18 PM, muddlinthrough wrote:

    @Volk,

    Sometimes, we're too smart for our own good. I'm amused by the 'China will take over the world' comments because, well, *someone's* got to do it, and as one power fades another takes its place.

    On the flip side, it's usually uncontrolled or unexpected reactions that cause depressions, recessions, or political coups and suicides.

    Yes, the Austrians 'predicted' the Great Depression. But it's the contraction after the sudden expansion that deepens the trough. Hoover's tightening policies. The silly 'can't solve the Greek problem with the Euro.' The even more silly 'don't raise the debt ceiling but damn the torpedoes and keep "stimulating" the economy.

    It's not rocket science. Economics isn't a science, because it fails the basic predictive power of reproducibility. At best, it's a historical analysis method that brings up interesting correlations ex post facto (or, to butcher the languange but get the idea exact, post ipso facto). Claiming that models work when 'most of the time, they're okay, but when they're bad, they're really, really wrong' is about the same as a palm reader looking at you sweating as she holds your hand and her telling you that your blood pressure is high and women make you nervous.

    Yes, but can you find a bride that will put up with the BO and the palpatations and the years of therapy to fix you into Prince Charming? Ah, there's the rub. There was that fling in college but she dumped you and the mail-order-bride stiffed you for the fees and disappeared with all the money in your bank account.

    Both the Austrians and traditionalist Keynesians lose site of one thing--everyone 'knows' individually what is going to happen, and they'll shaft the herd given a choice for personal gain. When the group think gets positive enough, things improve. When it goes negative, it takes A LOT of happy news to get the economy going again.

    The moneymakers are those with wealth that cynically exploit this game. Soros, Buffett, Miliken, those guys understand the psychology that everyone's a sucker and wants to be wealthy. Steve Jobs milked the system by selling people illusion of control and happiness (as long as they bought his version of 'simplicity' and played by his rules).

    Democracy is the art of voting enough bread and circuses that the wealthy don't mind putting up with the noise and the mobs that result. Politics in a democracy is promising enough constituents that you will bring home enough bacon from the rest of the suckers contributing that 'yours' get a bigger share than they put in.

    All else is just fluff. Watch which way the lemmings run, and buy life preservers.

  • Report this Comment On October 21, 2011, at 1:49 PM, 092326 wrote:

    Are you becoming a shill for the Democratic party?

  • Report this Comment On October 21, 2011, at 3:03 PM, ERCOOP wrote:

    isn't making the predicition of uncertianty within predicitions, certain?

  • Report this Comment On October 21, 2011, at 3:43 PM, DeniseHFernald wrote:

    Foxes and Hedgehogs -- AKA Perceivers and Judgers in Myers-Briggs Personality Inventory. At least their predictions are predictable!! Everyone should know which one they are so they can protect themselves from their own inherent tendencies.

  • Report this Comment On October 21, 2011, at 4:40 PM, VolkOseba wrote:

    Muddlinthrough, that sort of philosophical pessimism is best left to the intellectually backward tenured professors which have infested our colleges.

  • Report this Comment On October 22, 2011, at 12:25 PM, FutureMonkey wrote:

    "50% of the time, It works every time"

    -- Anchorman

  • Report this Comment On October 23, 2011, at 5:02 PM, hank321 wrote:

    I enjoyed this article, ....perhaps because I have placed considerable faith in its central point for decades.

    Anyone who can make good stock picks 60% of the time over a period of 5 years is doing sensationally.

    But there are habits that make the picking better. Don't chase rising prices in an old bull market, for example. Or, remain well diversified. Or simply, buy well managed firms when they are cheap (in a down market).

    Do not day trade if you are not a professional. And, my favorite, honor high yielding stable dividend producers,...especially if your horizon is 3-5 years or more.

  • Report this Comment On October 24, 2011, at 6:46 PM, pooskadad wrote:

    great article...as my grandmother used to say, "always positive, sometimes right"

  • Report this Comment On October 25, 2011, at 10:54 AM, DJDynamicNC wrote:

    @Volk - Ahh, good old Austrian economics, the school of thought which always makes accurate predictions and is always able to slot new information into the existing world view rather than modify that world view, which is fairly typical for such fundamentalist religions.

    To wit: "If the Fed causes too much malinvestment, it will necessitate a crash, the only question is the timing."

    I'm interested in your explanation for the much larger boom-bust cycles prior to the advent of the Federal Reserve.

  • Report this Comment On October 25, 2011, at 11:04 AM, DJDynamicNC wrote:

    Also, re: Krugman - I read through the articles you linked to. Did you miss the part where Krugman notes the impact of the housing bubble and explains the reasoning there? The policies he advocates are in opposition the austerity that we are currently attempting and which is being pushed even harder (and with commensurately more damaging effects) in Europe.

    You haven't really done much (read: anything) to address that core issue other than attempt an ergo propter hoc fallacy regarding Krugman's policy prescriptions. Which, I suppose, essentially is what Austrian economics boils down to - a priori claims and logical fallacies.

  • Report this Comment On October 25, 2011, at 1:17 PM, muddlinthrough wrote:

    @DJ--"Volk - Ahh, good old Austrian economics, the school of thought which always makes accurate predictions and is always able to slot new information into the existing world view rather than modify that world view, which is fairly typical for such fundamentalist religions."

    Specious argument. You see a parallel between faith in fundamentals and cause and effect in human predictability and sneer. Just because your models are more complicated, doesn't mean they're correct. Occam's Razor exists because it works. Me, I find your...lack of faith, disturbing.

    Krugman is an idiot. So, yes, he's smart and urbane and speaks well. But again, look at the definition of science. Anyone that deludes himself or herself to thinking that they got all the answers, or even if they modify beliefs they'll be "improved" and more accurate the next time they fight that battle that's not going to happen--well, simple is as simple does, but a thing should be as simple as possible, and no simpler.

    Gump meets Einstein. How're you doing in the game of life? Winning, much?

  • Report this Comment On October 25, 2011, at 1:31 PM, muddlinthrough wrote:

    "The form of the post hoc fallacy can be expressed as follows:

    A occurred, then B occurred.

    Therefore, A caused B.

    When B is undesirable, this pattern is often extended in reverse: Avoiding A will prevent B.

    "

    Krugman keeps arguing that we're NOT trying his prescriptions (keep stimulating! It's not enough, Obama!). A simple ad infinitum argument disposes of this. Pass a $15T stimulus package. The debt held by the US dollar will *only* double. With the government spending 400% of will only devalue the dollar by 50%.

    Sure. If there *was* causality or even an exact match to any of those statements. A -> B, *if there is casuality of a single source, therefore !B -> !A' works. Krugman's arguments reduce down to the 'if you listen to me, this will fix things,' when his fixes are delusional or marginally linked in causality.

    As a Keynesian, he has to believe that hugely expanding government action will solve the ills of the economy (fundamental belief). However, that works (in the Austrian sense) only if people believe, as a common collective, the government is doing the 'right thing' to 'fix things.'

    That worked in the 1930's and 1940's, as there was a common idea that could be added to the majority (90% caucasian, 94% passably speaking a common grammar and language if not dialect, huge natural resources).

    In the 2000's, and the next 100 years, the majority will be divided, (fewer common majority racial and ethnic and social traits, less national identification), more consolidation of wealth to the few (in a risky society, fewer take risks if they can't count on the rules protecting them or being viscious enough to hold by themselves).

    You can see this playing out on Wall Street, as the wealthy consolidate power and few lawbreakers are punished. And in the streets below, where the disassociated somehow want 'their way' even though they have no other 'way' other than wanting what those in the towers have.

    Krugman wants mass pacification through government action, as long as he dictates how the money is spent. What's any different between that and the mandarins of China protecting the emperor of the day? Nothing...it's not Austrian, just human. And sadly, pessimistically predictable.

  • Report this Comment On October 25, 2011, at 1:38 PM, muddlinthrough wrote:

    @Volk.

    If you think it's pessimism, it's pessimism. If you think it's backward and belongs in an academic setting, you're right.

    You want to put limits on this. In my experience, things tend to a mean. Intelligence, strength, ability have limits. Stupidity, malice, immorality are limitless. There's always ways to break the rules. Eventually if you make enough rules there's no action that doesn't violate some rule.

    Physics and gravity rule. God, universal truths, and folk I don't know or those I know and don't trust, pay cash.

  • Report this Comment On October 25, 2011, at 1:40 PM, muddlinthrough wrote:

    400% of private GDP spending.

  • Report this Comment On October 25, 2011, at 11:25 PM, richardrollo wrote:

    Long ago, when I was in college, about once a year I would go out in the California desert to get away. No radio or TV, no neighbors; just the cactus, the rabbits, the vultures, and the coyotes. It has built up since then. Some years there would be huge numbers of rabbits and few coyotes, other years there would be more coyotes and fewer rabbits. The vultures were less variable. I thought about how these rabbit variations seemed like the baby boom of the 1950's and the baby bust of the 1930's. It was then I realized that Malthus, who I had read for a course assignment, didn't know what he was talking about. The only prediction you can trust is that all things are cyclical. But, that's trite and not all that helpful.

  • Report this Comment On November 02, 2011, at 12:15 PM, DJDynamicNC wrote:

    "Krugman is an idiot. So, yes, he's smart and urbane and speaks well. But again, look at the definition of science. Anyone that deludes himself or herself to thinking that they got all the answers, or even if they modify beliefs they'll be "improved" and more accurate the next time they fight that battle that's not going to happen--well, simple is as simple does, but a thing should be as simple as possible, and no simpler."

    Ad hominem. Please see my inital claim re: logical fallacies and Austrian economics.

    The thing about complex systems it that they require fairly complex modelling if you want any degree of accuracy. I agree that we should seek the simplest possible model; however, the simplest possible model is not necessarily objectively simple. A 14 trillian dollar economy, tangled up in an even larger global economy, all being managed by billions of independent, largely irrational humans... that is not a simple thing!

    I would, however, agree that a $15T stimulus would put the case to rest once and for all. I'd be willing to try it if you will!

  • Report this Comment On November 02, 2011, at 4:48 PM, thidmark wrote:

    The author is either lazy or biased. Noted conservative Kudlow gets called out by name, but the other rubes are anonymous "well-dressed" stock pickers and analysts, or "an article" or "another executive."

    C'mon man!

  • Report this Comment On May 27, 2013, at 11:47 PM, somethingnew wrote:

    Great article!! I love the line:

    If someone said, "I think most people will be in a 10% better mood in the year 2023," we'd call them delusional. When someone does the same thing by projecting 10-year market returns, we call them analysts.

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