The pretense-of-knowledge syndrome …

Recent bad economic news has been reported as “surprising” and “unexpected” by the mainstream media.

That causes two problems:

  • Since the news is bad, it understandably breeds low consumer confidence.
  • More nuanced, since the news is “unexpected”, it breeds low confidence in the folks who are in charge: “do they know what they’re doing?”

While politicos need to maintain an optimistic façade, how much damage has been done by  “we’ll hold unemployment under 8%” and “this is recovery summer”?

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Excerpted from RDP: Hunkered-Down America by Robert Samuelson

Economists suffer from what one of them (Ricardo Caballero of the Massachusetts Institute of Technology) calls “the pretense-of-knowledge syndrome.”

They act as if they understand more than they do and presume that their policies, whether of the left or right, have benefits more predictable than they actually are.

For example, economic models, based on past relationships and assumptions, don’t capture shifts, which embody new assumptions and beliefs.

So modern economics has been oversold, and the public is now disbelieving.

The disillusion feeds stubbornly low confidence.

Because psychology is so important, the good news is that if the economy surprises on the upside, the boost to confidence could accelerate the recovery.

[The bad news is that if the economy surprises on the downside, the hit to confidence could slow the recovery.] 

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