Thursday, July 12, 2012

Think twice before jumping over a moving car!

Good morning economists. During the last couple of years many people have been asking whether the recession will end soon and the economy will rebound. Many academics and other market professionals have been appearing on the evening news throwing different dates and years left and right. The ministry of finance in 2009 projected 2013 as the year that the economy would recover. I am afraid that all of this is pure nonsense.

In order to be able to make an accurate prediction about the state of the economy, we need to know ALL the information about the variables that affect it. I will explain with an example.

Suppose that for some reason or another, a person wants to jump over a moving car (I know...weird). If the information about the speed of the car, the speed of the person, how high the person can jump, the weight of the person and much much more is not known, this is what will happen:


It is exactly the same with the economy. There are so many variables that can affect a national economy that even though we had all the necessary information available we would still have a difficult time predicting the future.

During the couple of months it has become apparent (from the failure of the banking sector and the request for financial assistance from the European Union) that governments have been hiding information from the public. How can anyone make a prediction if information is missing or is purposely false? No, we cannot predict how the economy will behave in the future. Not under these conditions.

We can make recommendations, however, as to what must happen for the economy to enter the path of increased productivity and decreased unemployment. The Everyday Economist article in the next issue of Gold magazine will address these issues.

Have a nice day!

2 comments:

  1. I think the only thing we have to hope for is the natural gas!

    ReplyDelete
  2. That is correct. But even the hype behind natural gas has been overshadowed by the visit of the Troika.

    ReplyDelete