Wednesday, January 23, 2008

The economy - wild guesswork?

While it is well known that economics is inexact, it is surprising to me that leaders - of companies and countries - put enough faith in it to make "bet your life" decisions on the basis of recommendations by a few economists. Sadly, the life they bet is not their own, but that of employees and citizens. Usually, they stretch as far as they can, and then, when there is trouble, they try to correct. Any engineer will tell you that a common problem with control devices is that of over-correction. Economies and businesses may be too large for any one person, or even small coterie to manage.

Since we are usually wrong about economic prediction, and correct too late, this is as bad as over-correction. Perhaps you have to be old and lived through multiple cycles to put everything in perspective.

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