The problems with economics? Too often, the math of an economist can’t be applied to the non-linear market we live in and react to on a daily basis. This paper by Dr DeLisle Worrell, Governor of the Central Bank of Barbados beautifully describes why economists have so much trouble applying their theories to the world we live into:
“You will all have heard the story of the madman under the street lamp. I first heard Trevor Eastmond with it, many years ago. Late one Friday night he was going down Broad Street and he saw this respectably dressed young man searching around under a street light. Curious, Trevor asked what was the problem. The fellow said that a Sir Grantley had slipped out of his wallet, and he was trying to find it. After a further minute or so of futile searching, Trevor said to the young man: “Let’s do this thing logically; exactly where were you standing when the $100 bill fell?” The young man pointed off into the darkness, 20 metres away. Dumbfounded, Trevor asked the obvious: “But if the money dropped over there, why are you searching here?” “Because this is where the light is”. This, I submit, is how we often do economics. Our theories can’t deal with reality, so we ignore the real world and spend our time “testing” our theories. If economics is to have any advice to offer which is useful for the management of real economies, we must speak to the reality in all its rich complexity, using all the data we have, all the methodologies we can devise, and all the sources of insight we can borrow. We must dig as deeply as we can, and become sleuths in pursuit of deeper understanding of our economies, even if our search leads us into paths that are dark and uncertain.”
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
Comments are closed.