The Government Bailout: Why in a Rush?
In today’s newsletter from the Heartland Institute, the article is titled “The Government Bailout: How Good Are the Forecasts?”
Citing a 2005 book by Philip E. Tetlock, Expert Political Judgement, the article argues that experts are useless for forecasting related to “complex and uncertain situations,” no matter how confident they look with their professional credentials. So you should never rush for a big personal investment decision just by hearing some “experts advice.”
For the same reason, a healthy dose of skepticism seems necessary upon the debates of our “seasoned” leaders in Washington that are about spending $700 billion of “other people’s money.” In particular, when they “have provided no scientific basis for their decision and they show no awareness of how one should properly approach such a forecasting problem.”
If I am not as pessimistic as these authors on the “science” of economic forecasting, at least I would be close. I haven’t spent enough time to study the proposals to make an “expert” comment, but sure I agree that, “there are ways to study this problem, but they should not be done in a rush, and they should not be done in group meetings.”
p.s. Henry Paulson’s initial plan called for government purchases of toxic mortgage-backed securities, which was heavily criticized by economists. Luckily, now the plan has been altered to buy equity stakes, following the British example set by Gordon Broan. See the news article (10/14/2008) by Paul Krugman, who just wons the Nobel prize in economics early this week.