I was talking in the last post about how inappropriate and outdated some of the economics discussion about monetary policy has become, especially the whole debate about policy rules, credibility and commitment. Nothing has been learned from the great crisis, and the field is mostly a dusty backwater twenty or thirty years behind most of the rest of the economy,
Idealized planning, prediction and forecasting had its heyday in the 1960s and 1970s in Western business (and before that the Soviet Union put its faith in planning.) It turned out to be a disaster. Formal forecasting didn’t work, and most such economists were shown the door in the private sector in the 1990s. But the approach is still going strong in economic policy, as if the clock stopped twenty years ago.
Here’s a contrast. Take the announcement that Amazon is buying Whole Foods yesterday. Amazon is, of course, wildly successful as a business. But Jeff Bezos does not try to forecast or predict. Instead, according to Farhad Manjoo in today’s NYT:
Yet if there’s one thing I’ve learned about Jeff Bezos, Amazon’s founder and chief executive, after years of watching Amazon, it’s that he doesn’t spend a lot of time predicting future possibilities. He is instead consumed with improving the present reality on the ground, especially as seen through a customer’s eyes. The other thing to know about Mr. Bezos is that he is a committed experimentalist. His main way of deciding what Amazon should do next is to try stuff out, see what works, and do more of that.
If you can’t reliably predict, then you have to think and act very differently.