Human Behavior in a Free Market

I just read an article that says that 45 percent of economists believe that we are headed for a recession, the other 55 don't believe that we will have a recession, more of a "relatively muted" downturn. I suppose most people would read this and wipe that sweat from their brow and say phew! that was close. I remain my ever-cynical self though. The worst part about this report is to know whether these future predictions will come true. They could be absolutely correct, but they could be absolutely wrong.

The reason I say this is in the name of praxeology (study of human behavior). To try and predict what millions of people are going to do tomorrow is impossible, even with a copious amount of data. What that data indicates is the past performance, which is no indicator of the future. Data analysis, especially in economics, is sketchy at best. The best that economic indicators can do is say, "if all things remain the same, this curve can predict the future." What economic analysis cannot predict, no matter how hard they try, is the anomaly of shocks. These can be as small as a new trend pushing the market in an unexpected direction or as large as planes flying into buildings, precipitating what was a simmering recession in 2001.

Who could have predicted in July, that in August we would see the beginnings of the latest credit crunch? What about a Hurricane that would destroy much of the city of New Orleans? Who could have predicted in August 2001 that one month later this country would suffer the worst terrorist attack in its history? It is shocks like these that make economic prediction at best an expensive preoccupation and at worst a horribile misguidance.

The beauty of the free market is the sheer inability for anyone to predict collective action in any reliable way. Just look at the stock market. With all our technology and brain-power, we still can't figure out when those shocks are going to occur, and which way a company's value is going to go from day to day, much less from year to year. Don't be taken so quickly by economists' prediction, the free market is not so easily lassoed.