Monday, May 05, 2014

Innocent frauds abroad

Central bankers boss the markets around.  They think.

It's May 5, 2014 and the biggest trees in the park still don't have leaves.  Now I'm neurotic about them - are they dead?  Do they just need sustained higher temperatures?

Jim Rickard's and his new book The Death of Money introduced me to Goodhart's Law:
  • `Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.'
Or, when a measure becomes a target, it ceases to be a good measure.

So, as Rickards posits, what kind of crazy town are we in with several years, nay decades, of central banks making policy decisions based on data that itself is the result of prior policy manipulations?
The answer:  One Flew Over The Cuckoo's Nest type of crazy town.  Further, it's a nice incidental parallel that most of the people in that group signed themselves in to Crazyville.

All of this aligns with the theory that the mere act of observation changes the object being observed.