| Since before the late 19th century we have been | | | | and believe that they do still have some degree |
| struggling to understand Economics in such a way | | | | of control over the economy. |
| that like other sciences we can make predictions | | | | The consequence of this difference of |
| about what will happen when we apply a particular | | | | understanding is that economists continue to |
| stimulus. | | | | throw Billions of public money at their problems |
| Countless higher degrees and PHD's have been | | | | while weather forecasters are content to make |
| awarded as we honed our collective understanding | | | | the short term forecasts that their understanding |
| of economic cause and effect, but over a | | | | of chaos shows them is the best that they can |
| century since the beginning of the study of | | | | expect. |
| economics we have still not been able to come up | | | | Because the economy was in a state of stable |
| with a definitive model that describes how our | | | | growth for so long the perception appears to |
| economy works. | | | | have become that this was the natural state of |
| This is nothing to be ashamed of. | | | | affairs and would continue for the foreseeable |
| We have been studying the weather for a lot | | | | future. People working in the financial sector |
| longer than our economy and have only recently | | | | therefore traded on the expectation that this |
| come to the conclusion that the processes that | | | | expansion would continue forever and therefore |
| produce weather are chaotic. This means that | | | | lost their ability to continue to trade when the |
| while we may understand the physical processes | | | | other half of the cycle, recession, occurred. |
| that produce weather we do not have the ability | | | | Their business's became tuned more and more |
| to make predictions because the complexity of | | | | finely to the conditions of a growth market and |
| the weather generation processes defies | | | | were no longer able to cope when the conditions |
| prediction. In the same way it would appear that | | | | of that market changed. |
| the economy, while we have a broad | | | | We can see the effect more dramatically if we |
| understanding of cause and effect, because of its | | | | use the world of formula one racing for an |
| chaotic nature, also defies prediction. | | | | analogy. We have F1 cars that have been |
| What we are seeing now in the aftermath of the | | | | developed to run in a specific environment, the F1 |
| Credit Crunch are attempts to influence the | | | | race track, but outside of that environment they |
| economy by governments who are ploughing in | | | | are completely useless. Take an F1 car down the |
| Billions, of pounds or dollars, into systems to try | | | | high street and you will see what I mean. There is |
| to stimulate them without any clear understanding | | | | no room in the car for shopping, the traffic |
| of the effect that their efforts at stimulation will | | | | calming measures would tear the aerodynamic |
| have. | | | | features off, a single raised drain cover would rip |
| It is like watching someone trying to start a car | | | | the bottom out of the engine, the car would |
| by kicking the tyres. | | | | overheat by going too slow and it would not be |
| In the sixties we were given two types of | | | | able to turn corners. In this situation would you |
| weather forecast, the short range forecast, for | | | | spend more money to change the F1 car to try |
| the coming week, and the long range forecast, | | | | to make it cope with the high street conditions, or |
| for the next quarter. When the UK meteorological | | | | would you recognise that the design was |
| office in Bracknell got two super computers to | | | | fundamentally unsuitable, throw it away and start |
| make more accurate forecasts, the first thing | | | | again? |
| that the computers told the forecasters was to | | | | In the economy we are facing a situation where |
| stop making long range forecasts because the | | | | our financial and other institutions have tuned their |
| results were no better than chance. | | | | operations for a specific set of market conditions, |
| History may be trying to tell us that our attempts | | | | growth. They have now shown that they are |
| to stimulate the economy have just as much | | | | unable to cope with a different set of market |
| chance of success as forecasters had at | | | | conditions, recession. |
| predicting the long range weather. | | | | We have two choices. We can continue to throw |
| The economy, as does the weather, goes in | | | | money at the problem in the vague hope that it |
| cycles. In the seventies we were sure we were | | | | might do some good, or we can we admit that |
| seeing the beginning of a new ice age and today | | | | theses institutions have evolved to service a |
| we are predicting global warming with no less | | | | specific market and are now no longer viable |
| certainty. For the last fifteen years we have been | | | | when those market conditions change. |
| experiencing steady growth in the global | | | | If the latter do we, like the F1 car, keep patching |
| economy, and today we are in recession. | | | | it up with expensive solutions that don't really |
| The difference between the weather and the | | | | solve the problem, or do we allow them to fail |
| economy is that we never thought that we could | | | | and replace them with something more robust. |
| control the weather so it was quite easy to admit | | | | What would be the cost of allowing the institutions |
| that we could not predict it beyond the three day | | | | who have evolved in this way to fail? Would it be |
| forecasting service we currently enjoy. | | | | more than the money that is currently being |
| Economists have not yet reached that epipha ny | | | | spent to try to save them? |