What do we know? Probably not much if its economics and finance we are talking about. This may seem about as off the wall as you can be with the huge amounts of information and the effort poured into finding out what goes on and why and retailing it for general and other needs. But all this information is about what happened yesterday, or longer ago, or months and years ago. Or rather what we think happened. We have only the figures, the methods of analysis, and the theories from which draw our ways and means of dealing with all this.
These are in the past and we are trying to understand the future now and now is when we do not know what is going on. Was yesterday just how you expected it to be, and is today going as planned? It is reported that the Governor of the Bank of England is summoning economists by the thousand to tell him what to do. “And shall quantatitive easing live or quantatitive easing die? Here’s twenty thousand economists will know the reason why!” does not quite have the ring of the Cornish National Anthem, and Trelawney was a Bishop, albeit a believer in the sound money policy of King William III and his Dutch advisers, but it will have to do for the time being.
Keynes died in 1946, Ludwig von Mises in 1973, Karl Marx in 1883, Lenin in 1924, Adam Smith in 1790, and there are other figures of economic theory from either a more distant past or from those reaching into the present. In all cases their thinking has had to be revised and reinterpreted as time has moved on, and in some cases the foundations no longer support the structures built on them. Mathematical economics or the “science” of econometrics is based on very complicated sums, numbers and ciphers intended to carry meaning. But they are based on data, and the statistics, runs of figures, and calculations are often not as good as we think they are or would like them to be. Also governments have a nasty habit of manipulating numbers they do not like, and the ways of dealing with them.
Also, there can be assumptions about action and reaction, behaviours, dependent and independent variables, and “worth” which become dodgier the more closely you inspect them. It was mathematicians, allied to computers operated by men in unregulated and uncontrolled environments, allied to the psychology of the casino that helped to give us the best of the latest bust. Amongst other things were those governments persuaded by economists by the thousand churned out with high qualifications from business schools and universities who assured us that the figures could only go higher and higher on the basis of their up to date interpretations of all this theory and the reams of data inputted into the computer servers and outputted through dedicated terminals. One forgotten feature was that the theoreticians of old did not take account of bankers who would lend massive credits that could not be sustained to poor people in order to extract charges and liabilities that would allow enough short term profit to fiddle the figures to keep the racket going.
There were madmen about, wittering on about the uncertainty of complexity, that the data was often on too short a run and inherently unreliable, that official entities were faking their figures to justify their desires, the nature of cyclical events, and what happens to the bath water when you lose the plug. Beyond them were the clinical apocalyptics attempting to apply the collapse dynamics of physics, the chaos of the universe of astronomers, the Book of Revelations, the games theories born in the poker schools of 1950’s colleges, or uncertainty principles, climatic variations, or the final insanity, the application of pure reason.
In the early 1960’s Professor Phillips of the LSE created his “Phillips Machine”, a laboratory device of glassware that demonstrated the flows of money, investment, and consumption according to Keynes Theory. It still exists, and it was possible to make a “road map” to see how it worked allowing for the fact that he had originally worked on probability theory. But today when going over this map the roads have changed radically. Some have had diversions imposed, others have too many pot holes, the destinations have been changed, but most important computers have created freeways where once there were only footpaths and ordinary roads. Some roads have tolls now, some have gone and others are roads to nowhere. Also, the weight of economic “trucks” and “traffic” have greatly increased with the rapid expansion of credit. I tried to revise the “road map” but there were just too many squiggly lines going in altogether unexpected directions and finishing up off the page.
So what is next? I have not been invited by the Governor to dine, although I cannot claim to be wiser or better informed than anyone else, despite the desperate trawling of the net and such. But as I have been going on a bit here we go.
My sciatica tells me it could be rates of interest, but as Lyndon Baines Johnson once said, “economics is a pain in the butt”.