In last weekend’s Thoughts from the Frontline, I talked about how the economics profession in general and central bankers in particular have consistently failed with their economic projections, and I pointed to the need to deepen our understanding of complex systems behavior. I said that we need to marry complex systems theory and information theory in order to establish a new basis for analyzing the economy and creating economic policy.
I couldn’t have been happier, then, when the new issue of Michael Lewitt’s The Credit Strategist popped into my inbox this morning and I found him addressing the same issue. Michael leads off with a discussion of the views of William White, formerly with the Bank for International Settlements (BIS) and now chairman of the Economic and Development Review Committee at the OECD in Paris. (He also spoke at our Strategic Investment Conference last year.)
White, too, has argued that ‘the fundamental analytical mistake has been to model the economy as an understandable and controllable machine rather than as a complex, adaptive system,’ and Lewitt certainly concurs.
OK, so we all agree. But I have to confess, I wasn’t quite satisfied with my own attempt last week to point to a new path forward for economics. It’s one thing to say the economy is complex and nonlinear and another to translate that fundamental understanding into actionable analysis. And in today’s Outside the Box, I find both Lewitt and White struggling similarly.
This post was published at Mauldin Economics on FEBRUARY 3, 2017.
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