Monday, December 28, 2009

Uncertainty Principle of Economics

With so many people asking why economics isn't able to predict one crisis or another, I've come up with an answer.

Just as physics has its uncertainty principle that forbids absolute knowledge over a particle's position and velocity (momentum to be more correct), perhaps economics should have its own uncertainty principle that it's impossible to predict both direction of a market and the timeframe with certainty. You can predict timeframe exactly, but then have no idea of which way a market will move. You can predict that a market is overvalued and will move down with increasing accuracy, but then cannot pinpoint the timeframe at all.

Such an uncertainty principle of economics would end the questioning of why the latest bubble or market movement wasn't predicted. It's just not possible, if it were, then we won't have a bubble or movement in the first place (think what would happen if we knew housing would drop AND the exact second when the drop would occur). Remember, you heard it here first, I expect a share of the Nobel Prize should someone follow through with the calculations and a formal proposition.

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