Economists are Always Right

Yes, economist’s are always right. But that’s only because they change their opinion and views after the fact, and always cover every possibility. Hindsight is always 100% right. And when you predict all 10 different potential outcomes, you can never be wrong. But nonetheless, it useless information to us.

As the joke goes, economists have correctly predicted 10 of the last 5 recessions. 

President Harry Truman once famously said, “give me a one-handed economist”, frustrated by their constant hedging of possibilities. As economists always say, “The economy will grow 3% in the second of the year. But, on the other hand, we could have a recession if…”

It takes far more intellect and analysis to courageously stake actionable outcomes. Granted, the further out in time you go, the less certain is the outcome. But, strangely, if you go even further out in time, the more certain the predictions become. The probability of “rightness” is heavily a function of time. And nobody, I don’t care if one is a genius with 1,000 IQ – or even if you go by the name of GOD – nobody can be right all the time.

This is the obvious reality we live in, convoluted by the complexity of trillions of real-time variables, coupled with the often unpredictable human free will and emotion. Economics epitomizes human emotions. Fear. Greed. Anger. Joy. Sorrow. And so on. Our global economy depends on 7.2 billion people, each with their own volatile daily emotions affecting everything they do on a daily basis – from the choices to go shopping because a girl is sad, to booking that vacation getaway to replenish the mind and body, to business executives feeling confident now is the right time to hire or invest. 

When I was in college, I nearly decided to be an economist. As well as a political scientist. As well as a mathematician. As well as a physicist. As well as a bum. I ultimately decided to do electrical engineering and digital technology. Only because it was the most practical and likely highest wages at the time. 

The reason I’m writing this blog is to state the obvious. Nobody is perfect.  I am not perfect. Predicting the future is the worst of all professionals and one that is sure to put you in the funny farm or leave you homeless. 

Having said that, we live in a world that constantly forces us to try to predict the future. For our personal lives; for our professional lives; for our love lives. And trying to predict correctly is vital to every facet of our lives. 

One can usually predict within 1-sigma probability quite easily (68% probability) if we put effort and analyze the data available. It takes exponentially more effort and knowledge to predict 2-sigma (95%), and, still, exponentially even more effort to achieve the diminishing returns for 3-sigma (99.7%). Beyond this is simply impossible. 

The difference between ordinary people and highly successful people is less than 1-sigma of difference. 

Understanding People is the Key.

I said before that economics exemplifies people and our world in aggregate. It is a reflection of our very own human nature. If you want to be successful in business or investing, understanding people is the most vital skill one must possess: How to motivate. How to punish when necessary without destroying one’s confidence. How to predict specific human responses to given circumstances.  The half-life of anger; the half-life of fear; the insatiability of greed. The power of pettiness.  The cerebral need for superiority. The basic instinctive need for desire; to be desired. All these factors and more feed into our economic system. 

Our economic system is the defining outline of our character and collective human nature. It’s why capitalism – the most successful model – dominates the world today. 

What is the point of this rambling pontification? 

I write a lot of different stuff in my blogs and book. Much of it is just for comic value and pure entertainment. But I have repeatedly emphasized the perils that lie ahead. And undoubtedly, many of the hundreds or thousands of folks that have read my blogs or book probably just let it go in one ear and out the other, convinced I’m some type of pessimistic doomsday type.

But it’s important to note a few key distinctions:

Over the long term I’m very optimistic about our human potential. Don’t ever doubt the power of human ingenuity and certainty for progress. All recessions and depressions end, and over the long haul, growth is always assured.

But, human progress never goes in a straight line. Our long history is replete with chaos and destruction; the classic two steps forward and one major step backward formula for human success. Don’t bet against 10 thousand years of proven human history by naively betting that our species in fundamentally different or improved based on less than a hundred years, less than the blink of an eye. Wars and calamity are all but certain to  occur. We can’t seem to go over a century without some type of major human calamity.  It’s due to our build-in half-life memory system. 

Strangely, our entire physical universe is in constant oscillation, cycling back and forth – from the tiniest of subparticles to the most massive bodies. Our human nature is also defined by this intrinsic oscillation. It seems that our conscience and emotional existence is consistent with the rest of our native habitat. Not surprising really.

People irrational believe, somehow, calamity won’t or can’t happen. It’s mathematically and physically destined to happen. The only question is when and at what frequency of oscillation. 

At the start of this blog I wrote about the one-handed economist. These one-handed economists don’t exist. But I try to be as direct and non-probabilistic as possible when writing about this stuff – despite understanding full well, there is always implied probability and uncertainty to everything in our lives. 

I don’t just constantly say that gloom and doom is coming. This is largely useless. 

Instead, I try to first build, methodically and objectively, the reasons why systems will collapse – whether it’s a tall skyscraper building or an economic model, the basic laws of structures always apply.

Then I go about trying to understand the most likely timeframes this will occur based on the structural weight support that is likely sustainable, the indicators of initial stress fractures likely to evidence these faults, and the propagation effects (dispersion, velocity of travel). And most importantly, how long irrational human emotion and denial can drive exuberance to conceal these realities from becoming self evident. 

This is the thought process by which I deduce how and when the global collapse will occur.

Several weeks ago I emphatically stated the bull market is dead. The markets were near all time highs still (within 1-2%). People may think this was some random call, but it was not. It was based on countless information and global data points. It’s an incredibly bold call to say the bull market is dead. Peaked near term is one thing, but dead means it won’t be back for years. It’s one thing to predict the market will crash sometime, but to do so with such specificity is difficult and rare – you either have to be nuts or the evidence is so overwhelming that any other option seems ridiculous. 

I knew I was right.  I still believe believe am right. And now that the market has crashed significantly in the past week, the bandwagon junkies and a few experts are starting to say similar things. Again, hindsight is always right.

But to be clear, I also said this is not yet the full systemic collapse I wrote about in my blogs and book. I merely said the market will correct 10-20%, regain some losses as goverment interventions take hold, and then the final and catastrophic global crash will occur in 2016 (or worst case 2017) as these interventions prove futile – China is a good example. 

It will happen. It will be like nothing we’ve ever seen. And it will be terrifying beyond belief. Those who lived the fear of pending economic collapse in 2008 understand how palpable the terror was back then. This will be completely incomparable and far, far worse.

But eventually, we will clean the ruble and rebuild the ruins, innovate and prosper once again. But not without a lot of pain and learning and humility first.

Be careful my friends. 

Everything built on greed vanishes faster than it was gained. Money and possessions may not be important ultimately, but losing all of it still sucks.