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  • An Analysis Of Economists Predictive Ability 3 comments
    Apr 28, 2012 10:08 PM

    I've lived though 4 recessions so far in my lifetime. I've watched economists recommend and politicians put forth plans to combat these recessions. One thing is obvious from all these plans: The economists cannot reliably predict future.

    Over these same years I've come to the conclusion that economics can be distilled down to following definition "the study of how individuals act in their perceived rational self interest at any given time." This means the we are looking at individuals. We can predict what individuals will do most of the time, but we can't predict what they will do all of the time. Economists do a great job of telling us what individuals did do, and describing why they did it, and what most of them will do in the future. Its the small group of people who were not 'the most' that cause some uncertainty.

    Another factor you have to consider with economics is the cascading effect. That is, one action causes another, action, that causes another action. etc

    For Example: Government props up the mortgage industry, which causes the housing market to crash, which causes building suppliers to go out of business, which causes people to buy less cars, which causes the auto industry to crash, etc.

    When you factor the cascading effect in with the element of uncertainty in peoples' actions, it means that when a small group of people act unpredictably it multiplies through the cascade causing larger and larger amounts of uncertainty towards the end of the cascade. (The law of unintended consequences on steroids.) This makes it nearly impossible for economists to accurately predict the future.

    Economist are excellent at describing what has happened, and what is happening but due to the uncertainty of human behavior, cannot possibly predict the future. Unfortunately, because of the accuracy of their observations, we give their predictions more weight than we should. Read the Communist Manifesto by Karl Marx, you will see the he has an excellent ability to accurately describe economic history and society's current economic situation. His predictions about have the future, however, failed miserably. Don't fall into the same trap at the Marxists have and believe the predictions of your favorite economist because his or her observations about he past and present were accurate.

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Comments (3)
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  • MiraPacific
    , contributor
    Comment (1) | Send Message
     
    Dr. Spiller: I believe you are on to something. A few days ago, I developed a hypothesis along similar lines. What are the actions of Governments, Nations, etc.and their interactions to predict economic future ? For example, what if the U.S. Government pulled out of Afghanistan right away ? What if the Greek economy collapsed ? What effect would it have on predicting the economic future of the world ? What other actions when combined together results in predicting an economic future ? A series of "actions and reactions" ?
    Dr. Warren Reynolds
    30 Jul 2012, 02:21 PM Reply Like
  • Yuri Maltsev
    , contributor
    Comments (2) | Send Message
     
    I am not sure that economists can be fortune tellers at all. F. A. Hayek in his Nobel Prize Lecture "The Pretense of Knowledge" states it very well:

     

    http://bit.ly/16UdJrM

     

    We can predict general outcomes of policies but not particulars: i.e. if we would get into war in Syria and Iran the stock market would dive (at least in the beginning). Or high corporate taxes impede competitiveness, etc.

     

    28 Aug 2013, 08:54 PM Reply Like
  • Yuri Maltsev
    , contributor
    Comments (2) | Send Message
     
    F. A. Hayek on this. His Nobel Prize Lecture "The Pretense of Knowledge" states it very well:

     

    http://bit.ly/16UdJrM

     

    29 Aug 2013, 07:47 AM Reply Like
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