Economics Matters by Laurence Kotlikoff Podcast Why the Economy is Unpredictable 4 1× 0:00 Current time: 0:00 / Total time: -1:10:41 -1:10:41 Audio playback is not supported on your browser. Please upgrade. Why the Economy is Unpredictable Larry Kotlikoff Nov 01, 2022 4 Share Watch on YouTube History's most famous economics line is President Roosevelt's, The Only Thing to Fear is Fear Itself. The statement, supported by rich theory and clear facts, makes a mockery of economic self-styled soothsayers, no matter their media standing. The reason? Fear, particularly collective panic, is not predictable. This leaves the economy driven as much by psychology as by fundamentals. If the public jointly comes to believe A will happen, it will make A happen. Same with B, C, D, and...Economists call this multiple equilibria -- multiple positions at which the economy can land if everyone thinks that everyone thinks this will happen. Examples of self-fulfilling prophecies: If I think Joe is laying off his workers because he thinks I'm laying off my workers and his workers are my customers and my workers are his customers, Joe and I can easily coordinate on firing each other's customers as the best way to survive. Or if I'm raising my prices because I think my competitors are raising theirs by 10 percent because they think I'm raising mine by 10 percent. The bottom line is economic unpredictability, with booms, busts, and inflations triggered by enough talking heads pronouncing the same unfounded nonsense at the same time. The "Great" Recession is a case in point. Roger Farmer is a wonderful, extraordinarily deep, macroeconomist and economic theorist who has devoted his career to studying the potential for multiple equilibria. In this extraordinary podcast, Roger takes us through the history of economic thinking about this problem. It includes John Maynard Keynes' animal spirits, the sunspot theory of Karl Shell and David Cass, Peter Diamond's Nobel Prize for multiple equilibrium in labor markets, and Roger's own extensive work on the subject. Roger is a British/American economist. He is currently a Professor at the University of Warwick and is a Distinguished Emeritus Professor and former Chair of the Economics department at the University of California, Los Angeles. Roger has received numerous awards and is a member of numerous honorific societies. He's also the author of three books that explain the economy's indeterminacy and how policymakers can respond. Economic Matters - The podcast is hosted by Laurence Kotlikoff and moderated by Alex Kotlikoff. Laurence Kotlikoff is a Boston University Economist, a NY Times Best Selling Author , President of maxifi.com , and Author of Money Magic . Stay Connected: Facebook , Twitter , LinkedIn Discussion about this episode Comments Restacks Economics Matters by Laurence Kotlikoff Podcast Economics can make a massive difference - collectively and personally. Listen in as we chat with some of the most influential leaders in economics across the globe. Economics can make a massive difference - collectively and personally. Listen in as we chat with some of the most influential leaders in economics across the globe. Subscribe Listen on Substack App RSS Feed Appears in episode Larry Kotlikoff Recent Episodes Naill Ferguson, the Preeminent Economic Historian, Talks Geopolitics -- Yesterday's, Today's, and Tomorrow's Aug 10 • Larry Kotlikoff Jack Schibli of Lane Generational Explains Why the Stock Market Runs Largely on Autopilot and the Equity-Investing Danger this Presents Aug 2 • Larry Kotlikoff The Brilliant and Captivating Justin Wolfers Talks Economics and the Economy Jul 31 • Larry Kotlikoff Economics Matter's First Substack Live! Talking Social Security's Extreme Insolvency with Pam Krueger, Founder and CEO of Wealthramp, and… Jul 29 • Larry Kotlikoff Brilliant Investing Requires Thinking and Looking Outside the Box -- Steve Laffey Is an Extraordinary Investor. This is a Podcast You Can't… Jul 23 Economist John Goodman, Father of HSAs and One of America's Most Influential Policymakers, Talks US Healthcare Reform Jul 16 • Larry Kotlikoff Bruce Mehlman Joins Economics Matters to Discuss the Long-Term Economic Impact of the War in Iran, Geopolitics, Economic History, and His… Jul 2 • Larry Kotlikoff Sebastian Mallaby Returns to Discuss AI and his Latest Bestseller: The Infinity Machine. Jun 25 • Larry Kotlikoff