What an absolutely astounding admission former Fed boss Alan Greenspan makes about his new book The Map and The Territory: “Not a single major forecaster of note or institution caught it [the 2008 crash]. The Federal Reserve has got the most elaborate econometric model, which incorporates all the newfangled models of how the world works—and it missed it completely. I was actually flabbergasted. It upended my view of how the world worked.”
That this epitome of Washington brilliance and establishment power really thought the little models could actually forecast the future takes one’s breath away! One could expect that such models would be used as rough guides to action and to keep naive investors calm but that he was surprised the models did not predict specific events is incredible, especially for someone who supposedly had believed in markets. He admits he just now realizes that irrational fears influence how people behave! But we are supposed to trust these guys with $3 trillion sitting in the Fed, telling us they have a way out because the models are scientific, right?
Nobel Laureate F.A. Hayek predicted that people in the future looking back would “discover that the most widely held ideas which dominated the twentieth century” like scientific planning “were all based on superstitions…an overestimation of what science has achieved.” Hayek noted more than a half century ago that there were more intercortical connections in one person’s mind in a few moments than there are atoms in the entire solar system. While the material world still largely remains a mystery to science, human behavior is a real black hole. With billions of people’s minds and untold interactions between them the total human complexity is overwhelming. No super-mind in some Federal Reserve or White House can comprehend this complexity, much less control it. The progressive pretension to understand what they cannot possibly know is the true source of today’s discontent.
http://www.libertylawsite.org/2013/11/04/can-we-finally-retire-scientific-superstition/
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