The Mythical Beast vs Real Life

“In recent times, most economists have pretended that the economy is essentially predictable and understandable. Economic decision- and policy-making in the private and public sectors, the thinking goes, can be reduced to a science. Today we are seeing consequences of this conceit in the financial industries and central banking. ‘Financial engineering’ and ‘rule-based’ monetary policy, by considering uncertain knowledge to be certain knowledge, are taking us in a hazardous direction…

“Friedrich Hayek began a movement to bring key points of uncertainty theory into the macroeconomics of employment…

“In the 1970s, though, a new school of neo-neoclassical economists proposed that the market economy, though noisy, was basically predictable. All the risks in the economy, it was claimed, are driven by purely random shocks -- like coin throws -- subject to known probabilities, and not by innovations whose uncertain effects cannot be predicted.

“This model took hold in American economics and soon practitioners sought to apply it. Quantitative finance theory became a tool relied on by most banks and hedge funds. Policy rules based on this model were adopted at the Federal Reserve and other central banks…

“Current experience is putting these claims to the test…

“Entrepreneurs' willingness to innovate or just to invest -- and thus create new jobs -- is driven by their ‘animal spirits’ as they decide whether to leap into the void. Central bankers… can try to guess which way entrepreneurs are going to jump, but some wide swings in employment are inevitable…

“There may be other mechanisms at work. Uncertainty reigns.”

(“Our Uncertain Economy.” Edmund S. Phelps. Wall Street Journal: March 14, 2008. pg. A.19)

DECISION-MAKING IS NOT A SCIENCE. Policy cannot be engineered. Management is messy, and strategic management is the messiness of uncertainty.

The Mythical Beast is that data and facts drive decisions directly with no "animal spirits" of human interpretation. We slay that myth through the sense of feel we develop as we get in touch with the processes from which data are extracted.

Understanding and insight trump knowing once again.