Too Vast To Manage – Why Monetary Central Planning Must Fail
By Tyler Durden
Submitted by MN Gordon via Economic Prism blog, (annotated by Acting-Man's Pater Tenebrarum),
Beyond Human Capacity
Distilling down and projecting out the economy’s limitless spectrum of interrelationships is near impossible to do with any regular accuracy. The inputs are too vast. The relationships are too erratic.
The economy – complex and ever-changing interrelations.
Image credit: Andrea Dionne
Quite frankly, keeping tabs on it all is beyond human capacity. This also goes for the federal government. Even with all their data gatherers and number crunchers they are incapable of stitching together an exact understanding of where the economy is really at, let alone where it is going.
What’s more, the economy is always evolving and changing in ways that are hard to discern in advance. Cause and effect do not correlate with the simple precision of a balance scale. When one input decreases, an apparently correlated one can somehow increase.
For example, when incomes go down, apartment rents should also go down. Lower incomes should result in lower price competition for apartment rents and, thus, lower rents. Logic would support the inherent truth of this premise.
Yet, in Sacramento California, and many other places, the exact opposite has happened. Median incomes have declined 13 percent, while median apartment rents have increased 13 percent. How does that work?
Perhaps too burdensome development regulations have something to do with it. Or maybe lasting fallout from the great mortgage bust is the culprit. Certainly, the shortage of affordable rentals is driven by a great variety of factors.
Stranger than Fiction
Our intent is not to scratch for a conclusion to the Sacramento income vs. rental price conundrum. We’re merely holding it up as an example of one market enigma, as perceived by our own predisposed biases. Indeed, our own subjective preferences cloud our thinking.
No doubt, many market movements seem stranger than fiction. But they happen all the same. It doesn’t matter if we expect them. Nor does it matter if we agree with them.
Of course, the strangest market of all is the stock market. Just ask any stock picker. If they’re honest, they’ll admit to being right about 50-percent of the time. In other words, their efforts are as accurate as a coin toss.
Dow Jones Industrial Average, daily. The “bad news is good news” market is back – for now – click to enlarge.
Confounding the price and earnings ratios of stocks is the largesse of monetary gas blowing into the market. Apparent distortions and irrational movements are pushed farther and wider than any honest individual would expect or think to be possible. Theories are even concocted to explain this strange reality.
One critical insight of late is that bad news for the economy is good news for stocks. Conversely, good news for the economy is bad news for stocks. In practice this will be proved to always be true until the moment it isn’t anymore. …read more
Source: Too Vast To Manage – Why Monetary Central Planning Must Fail
