A Quote by Martin Feldstein
A second reason why science cannot replace judgement is the behavior of financial markets.
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Do not trust financial market risk models. Despite the predilection of some analysts to model the financial markets using sophisticated mathematics, the markets are governed by behavioral science, not physical science.
And finally, no matter how good the science gets, there are problems that inevitably depend on judgement, on art, on a feel for financial markets.
Ultimately savings have to go somewhere and I think they will find their home in financial markets and within financial markets, a large part in equity.
The generally accepted theory is that financial markets tend towards equilibrium, and...discount the future correctly. I operate using a different theory, according to which financial markets cannot possibly discount the future correctly because the do not merely discount the future; they help to shape it.
Countries are not like financial markets. Social change cannot be executed as swiftly as credit-default swaps. You cannot sell short on social commitments and practical responsibilities.
And finally, no matter how good the science gets, there are problems that inevitably depend on judgment, on art, on a feel for financial markets.
Unable to understand how or why the person we see behaves as he does, we attribute his behavior to a person we cannot see, whose behavior we cannot explain either but about whom we are not inclined to ask questions.
The thing about markets, and I think the thing people don't understand about that, is markets are not kind, but they're very efficient. So when the marketplace determines an inefficiency in the system, it corrects that, and a market system that's left alone will reward good behavior and punish bad behavior.
Technique is really personality. That is the reason why the artist cannot teach it, why the pupil cannot learn it, and why the aesthetic critic can understand it.
Developments in financial markets can have broad economic effects felt by many outside the markets.
The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained.
The principal linkages between Japan and the U.S. global economies are trade, financial markets, and commodity markets.
There's been a dichotomy in the world financial markets over the last 30 years between the developed markets and the developing markets. Brazil, for example, always had to pay a lot more in interest to borrow money than governments in developed nations.
If you go back to Adam Smith, you find the idea that markets and market forces operate as an invisible hand. This is the traditional laissez-faire market idea. But today, when economics is increasingly defined as the science of incentive, it becomes clear that the use of incentives involves quite active intervention, either by an economist or a policy maker, in using financial inducements to motivate behavior. In fact, so much though that we now almost take for granted that incentives are central to the subject of economics.
Financial markets are supposed to swing like a pendulum: They may fluctuate wildly in response to exogenous shocks, but eventually they are supposed to come to rest at an equilibrium point and that point is supposed to be the same irrespective of the interim fluctuations. Instead, as I told Congress, financial markets behaved more like a wrecking ball, swinging from country to country and knocking over the weaker ones. It is difficult to escape the conclusion that the international financial system itself constituted the main ingredient in the meltdown process.
Economic science concerns itself primarily with theoretical and empirical generalizations about the behavior of individuals, institutions, markets, and national economies. Most academic research falls in this category.
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