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how about some humilty from the experts who think they can manage the economy and everyones life


The “Pretence of Knowledge” was the title of economist Friedrich Hayek’s 1974 Nobel speech. In his first few sentences, he described the then-prevailing economic condition in words appropriate to today:

… [this economic condition] has been brought about by policies which the majority of economists recommended and even urged governments to pursue. We have indeed at the moment little cause for pride: as a profession we have made a mess of things.

Hayek’s words in 1974 were not meant to describe today’s condition, although they were extremely prescient. His hope was that the limits of knowledge would be recognized by the economics profession so that we would never reach our current situation.

Hayek’s call was for professional humility at a time when Keynesians arrogantly believed they could manage the economy and the business cycle. His was a caution about how little we really know about the economy and can ever know about it:

.. in the study of such complex phenomena as the market, which depend on the actions of many individuals, all the circumstances which will determine the outcome of a process, … will hardly ever be fully known or measurable.

Hayek described the role of economics as follows:

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

Two decades earlier Hayek had dedicated his The Road to Serfdom to the socialists of all parties in hopes that they would see the error of their ways. This warning was ignored by the political class as his Nobel speech was subsequently ignored by most economists.

Last week the Chairman of the Federal Reserve, Ben Bernanke, testified before Congress. He described the condition of the economy as “unusually uncertain.” That phrase, fogged up enough to make Alan Greenspan proud, was inconsistent with Mr. Bernanke’s prior “pretence of knowledge.” Peeling back the Fedspeak, Mr. Bernanke essentially admitted that he was baffled by the economy and had no idea what might happen next.

For anyone who has looked at Mr. Bernanke’s (the Fed’s) forecasting record, this quasi-admission should not surprise. Mr. Bernanke has not foreseen anything with reasonable accuracy. As Mish pointed out:

Ben Bernanke was pretty certain there would not be a recession, that housing was not in a bubble, that the unemployment rate would peak at 8.5%, that paying interest on reserves would enable the Fed to hold short-term rates above 2%.

Bernanke was wrong on every count. At least now he admits he is guessing.

Most economists have ignored Hayek’s caution for humility. Bernanke’s doubts in his recent testimony are both new and troublesome. It suggests that he does not know what to do next. He has tried everything that he “knows” in dosages never before imagined. Despite his actions, monetary and fiscal actions have not moved the economy. This is not the way the world is supposed to work, at least according to the (increasingly disrespected) prevailing macro-economics.

Mr. Bernanke and others of his generation and training have absorbed what Mark Twain described as dangerous knowledge:

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  • 418 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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