Predicting the past

Posted: 25 April 2012 in Uncategorized
Tags: , ,

It’s easy to cavalierly predict the future as long as the future looks exactly like the past.

Avinash Dixit shows how easy it is:

At least one prediction can be made with high confidence; think of it as the central path in the cone. On it, in the course of the next century there will be several financial and economic crises. Each crisis will be preceded by a boom and by a state of euphoria, when almost everyone will believe that “this time is different; we have learned how to avoid crises, and have finally learned the secret of how to sustain the Great Moderation.” When the crisis hits, policymakers everywhere will be shocked and unprepared. Their panicked responses will merely paper over the real problems and sow the seeds of the next crisis a few years down the line.

Such a prediction makes a lot of sense as long as we don’t learn anything and stick with the same capitalist institutions that, now as in the past, create financial and economic crises.

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