An interesting article from Barry about the folly of predicting:
As we have detailed far too many times, people are terrible at making predictions. You draw conclusions from a single data point. You don’t know what the economy is going to do, or where interest rates are going…
Predicting stuff isn’t that hard. A good heuristic is that things tend to get better or stay the same than get worse, and second, that the status quo tends to prevail. This blog has been right since 2011, correctly predicting a continuation of the bull market, that Greece would be be a dud, that Putin would not do anything, that the fiscal cliff and sequester were buying opportunities, that Facebook stock was a buy at $35 (it’s now at $70), that oil and gas would go higher, and many more…
It’s safe to assume short term interest rates will remain at zero for a very long time because that is the most likely outcome in accordance with Occam’s Razor, which states that among competing hypotheses, the one with the fewest assumptions should be selected. Other, more complicated solutions may ultimately prove correct, but—in the absence of certainty—the fewer assumptions that are made, the better. How about the economy? It’s reasonable to assume 1-3% GDP growth for the foreseeable future. This assumption doesn’t require a huge leap of faith and is the most probable outcome.
Rather than try and contain the irrational exuberance that has led our economy on a boom and bust cycle over the last century, Yellen said the best approach was to ensure that whoever created these bubbles was healthy enough to clean up the mess when things went wrong. The Fed can do this by ensuring that banks hold more capital in reserve when buying stock on margin, for example, or by making sure they aren’t over leveraged when creating exotic financial instruments like collateralized loan obligations.
This is in agreement with our earlier post Why Economists Don’t Need To Be Able To Predict. The fed cannot or should not predict or try to pop bubbles, but most importantly, it has the tools at its disposal to keep crisis as brief and contained as possible. The left says the fed failed because it did not foresee the extent of the 2008 financial problem, but who cares? The market is at historic highs. Every economic indicator from exports to profits is better than ever. TARP worked. 2008 is ancient history. The point is, fed policy was a success and the libs who predicted that the USA would become another Japan or Greece were dead wrong, again.
Like the watched pot that never boils, if there is a bubble, it won’t pop until people stop predicting it. If the alleged web 2.0 bubble does pop, it will be the most anticipated bubble ever. Most of the time bubbles pop quickly and unexpectedly and very few predict it, just like only one or two analysts predicted the top of the dotcom bubble or the collapse of Enron. The left has been calling web 2.0 a bubble since 2005 when Facebook was just one year old. Now Facebook is worth $150+ billion. The only bubble is liberals attributing any upward trend whether it’s stock prices or housing to a bubble. Also for convenience, we’ll lump those doom and gloom libertarians with the welfare liberals since they seem to both be socially liberal and fiscally conservative regarding the debt being unsustainable. It’s called the libertarian-left alliance and includes the likes of Rodd Dresher from American Conservative and the Daily Dish’s Andrew Sullivan. This blog is about bearing witness to reality. When I say stocks and web 2.0 valuations are not a bubble and will keep going up or that the debt binge is sustainable, I’m narrating the world as it is. The libertarian-left, on the other hand, prefers their comforting delusions and wishful thinking that one day, somehow, impossibly, congress will stop spending, the market will crash, and plutocracy will lose all their money.
The greatest job advice you’ll ever get is to stop looking for a job and start looking for a way to create economic value. Google’s Larry Page predicts an era of people working less. Facebook and Google are also common targets of the left because these companies are so profitable and successful, and the left hates success, looking for any excuse to tax and regulate it away. Google and Facebook create economic value, Obama and the left destroy it. The left also has a love-hate relationship with labor. Like the FDR days, they want to put everyone to work, provided corporations are not allowed to profit from it. I look forward to the post-labor society. Those with a high IQ will get rich creating apps, trading on Wall St., through Bay Area real estate, and investing in stocks & web 2.0, while everyone else will live down to their true economic potential, instead of the inflated wages and they were accustomed to. The post labor movement is about fastidious attention to productivity and efficiency, making sure each individual paid for the value he or she brings, and no more.