Tuesday, March 04, 2014
Economists Were Told Five Years Before the GFC That It Would Happen
When you read in a paper or hear someone state that nobody knew the financial world was going to explode in 2008, they are either misinformed or a liar. William White, a central banker warned them for over five years that there was trouble brewing and that it should be stopped. They refused to believe him and replied that he didn't have any model to back up his analysis.
The painting is not the object of the painting. An economic model is not the thing being modeled. It is at best a very good approximation, and at worst, a terrible fantasy. Models have to be proven by evidence. Evidence is used to explain models as well. Evidence can exist without a model or narrative. But, models do not exist without evidence, except in economics and other forms of pseudo science. William White says that central bankers are making it up as they go and they can't even agree on what needs to be done. The funny thing is that none of them have lost their salaries or careers for ignoring clear warnings of imminent failure of their governance and policies. They've all failed upwards. May be we should make them all swear to "Do no harm" and put claw back clauses in their employment contracts in case they fail at their jobs. Of course, that would work for politicians and investment bankers as well.
The painting is not the object of the painting. An economic model is not the thing being modeled. It is at best a very good approximation, and at worst, a terrible fantasy. Models have to be proven by evidence. Evidence is used to explain models as well. Evidence can exist without a model or narrative. But, models do not exist without evidence, except in economics and other forms of pseudo science. William White says that central bankers are making it up as they go and they can't even agree on what needs to be done. The funny thing is that none of them have lost their salaries or careers for ignoring clear warnings of imminent failure of their governance and policies. They've all failed upwards. May be we should make them all swear to "Do no harm" and put claw back clauses in their employment contracts in case they fail at their jobs. Of course, that would work for politicians and investment bankers as well.
