Economise on economics

I saw Paul Lewis from MoneyBox (a generally good guy, with a good programme) on the BBC morning programme today.   He “couldn’t believe” that the Governor of the Bank of England said that he (the Governor) couldn’t control the economy.   I wasn’t sure whether Mr Lewis meant he thought the Governor could control it (so Mr Lewis was admitting that he was labouring under a misapprehension) or he couldn’t believe that the Governor would admit it.  Since nobody can control the economy, I think he meant either that he couldn’t believe the Governor of the Bank of England would know the real facts about economic theory being nonsense, or couldn’t believe he would tell the truth if he did!

Later on I realised that his point was about having no scope to raise interest rates and other schemes beloved of economists.  Since nobody actually knows what is going on or what effect past actions would have, I’m not sure that matters, but he went on to say that “nobody expected it”.  I refer the learned gentlemen to the articles linked above written, in one case, in September last year.  There are unexpected events all the time, nobody has a clue what impact different changes will have, big changes might make no difference and tiny things (a butterfly flapping its wings, for example, may have global consequences).

Mr Lewis also said that economists had “never seen anything like it”.  Of course, since the economy is a complex adaptive system on the edge of chaos, is non-linear and is therefore very sensitive to initial conditions:

1) Nobody has ever seen anything exactly like any other situation before, it is all unique and,

2) Nobody knows whether a “very similar” situation will have an end result even remotely like the previous one, and

3) Nobody knows whether a completely different situation will have an end result that looks (but actually is not) exactly the same and,

4) Nobody knows what any action will do, what any prior action has done or indeed whether there is any effect at all of any action (like pumping in billions in quantitative easing).

Nobody knows.  If economists think that “something like” the situation, in a complex adaptive system is equivalent to “exactly the same”, they are wrong.  If they think they can have anything more than nominal control over the system, and can be sure what effect their actions have, they are equally wrong.

So the Governor is right, he has little or no control, and I applaud him for admitting it.  Maybe now we’ll start to get some common sense into the economy instead of theory that is frankly, more like medieval superstition than science.

Finaly, we got away from the delusions of grandeur of politicians, economists and bankers, and got to the interesting bit – a “mail in” for people about money saving ideas.  Great idea.  If you’ve got useful ideas, put them on the BBC site, the MoneyBox site, Money Savings Expert, here – everywhere you can think of.  Just sort out what your values are first, before budgeting or you might save money only to waste it on trash and still not have the money for the things you really want.

And if you don’t know how to sort out values, try this.

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