When Albert Einstein first published his paper on ‘special relativity’ in 1905, the world didn’t like it. In fact, most people laughed at him.
‘In France, Einstein was largely ignored. In the U.S., a few understood it, but, in general, relativity was ridiculed as “totally impractical and absurd.”’
But even when the academics of the day gradually realized the truth of Einstein’s discovery, large swathes of the public remained unconvinced.
A fact that baffled Einstein.
‘This world is a strange madhouse,’ he wrote in a letter to a close friend. ‘Every coachman and every waiter is debating whether relativity is correct.’
A book was even published in 1931 — One Hundred Authors Against Einstein — which was filled with criticisms from armchair philosophers, academic cranks, and other opinionated ignoramuses. But as Einstein said when the book came out: ‘It would not have required one hundred authors to prove me wrong; one would have been enough.’
And this is the point…
Nothing is certain, least of all expert opinion
We live in a world where too many people are certain of their opinions. In other words, you should not believe what you think. The fact is most people aren’t qualified to give an opinion on most subjects.
And yet, ask your neighbor what they think about COVID, climate change, the Russia-Ukraine conflict, the viability of quantum physics, the economy, or any other topic, and they’ll most likely give you a strongly held opinion.
Never mind your neighbor, a study in 2003 showed most experts aren’t very good at passing accurate judgements either!
It notes:
‘Highly knowledgeable people often fail to achieve highly accurate judgments, a phenomenon sometimes called the ‘‘process-performance paradox.”’
In business, you can have any opinion you want, but at the end of the day, the truth of the matter will show up in your account balance. No matter who you are, what firm you work for, or what university you went to (if any).
When you get it wrong, there are no excuses; only some feature of reality you failed to consider.
Now, most opinions are harmless if you take them as someone’s best guess and not an iron-clad guarantee. Indeed, seeing how someone came to a specific conclusion can provide you with good information you can use to weigh up against your own judgements.
But there’s one area of life where opinions have major consequences for economies, markets, and ultimately people.
And that’s public policy…
The two main players in public policy are governments (spending and taxation decisions) and central banks (monetary tools like interest rates and the creation of money).
It’s in these places that opinions shape markets.
But what if these institutions have the wrong opinions?
This is the big problem we face today…
‘What are the consequences if the gulf between what public officials think is reality and what is actual reality has grown too large?’.
For example…
Central bankers thought inflation was transitory. It wasn’t.And now we’ve consequences rippling through the world:
On energy policy, German politicians thought Russia was a stable partner. It wasn’t.
Now we have officials in the US trying to tell us that two-quarters of negative growth isn’t a recession and that the economy is ‘going strong’. It isn’t.
So why are we listening to the same people who helped create this mess?
Why have none of them fallen on their swords at the very least?
And why do they still have so much power?
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