For most people uncertainty is an uncomfortable feeling. Yet we are forced to live with it every day. The farmer wonders if rain will arrive in time to save his crop. Many a cancer sufferer lives with the uncertainty of cure or recurrence. The self-funded retiree endures the uncertainty of the stock market. Uncertainty is an ever-present hazard and erodes confidence.
Prediction is fraught with uncertainty. Yet prediction is what we rely on to make important decisions. When an adverse event occurs, we ask what happened, why did it occur, and how can we avoid it recurring. In some instances, such as a road crash, what happened is often obvious, why it has occurred is usually resolved by careful investigation, but how to avoid a similar event may defy even the wisest. In medicine, what has happened, the diagnosis, is often patently clear; why it occurred is largely known; and the outcome, the prognosis, is generally predictable from experience. But sometimes neither diagnosis nor prognosis is certain, so both patient and clinician live with uncertainty until the resolution is possible.
In financial systems, what has happened is usually there for all to see, but why it’s happened is often obscure, complex, and possibly inexplicable, so that avoiding a similar situation is beyond comprehension. Without understanding the cause, no preventive action is possible. This is where we find ourselves with the stock market decline, the global financial crisis, and the economic downturn. We are working within a multifaceted complex financial system which operates like all systems – every part influences every other part.
Given this known complexity, the numerous imponderables, the paucity of reliable information, and sometimes the deliberate hiding of it, it is surprising, even dismaying, that so many voice their opinions with such confidence, such assurance that they understand the problem and have the solution at hand. Some such commentators have prima facie authority because they are economists, or experts in monetary matters; others – politicians, economics correspondents, and sundry columnists, are less well credentialed. But lack of suitable qualifications to give an informed opinion seems to be no barrier to loudly and authoritatively voicing one. This would not be so much of a problem were it not for the fact that no one, no one at all, knows enough to give a reliable opinion. So it’s all hot air, dangerously masquerading as learned comment.
No one knows, not even Warren Buffett, what the stock market will do this week, next week, next year. About all that can be said is that if this market downturn follows the pattern of previous ones, recovery will occur eventually. The trajectory is anyone’s guess. Likewise, no one can predict the trajectory of the economic downturn. We just have to live with the uncertainty. Moreover, the effects of moves made by the Government, such as the bank guarantee, made in a near-vacuum, are not predictable with any real precision. So what a pity it is that so many, qualified or otherwise, try their hand at the hazardous process of predicting. What a shame it is that people make such bold assertions without even rudimentary evidence to back them, and use them to inflict political damage. More...