For months before the Brexit referendum on June 23rd, entire industries were hard at work attempting to predict how the UK electorate would vote.
Polling companies canvassed neighborhoods, made phone calls, sent surveys by e-mail, monitored websites, and spoke with people on busy city streets, in the process assembling a trove of data which the companies then analyzed and distilled down to probabilities for and against.
The Polls and Predictions Were Wrong
The media in virtually every country around the world built on this polling — and on the reams of op-eds by pundits with (and without) vast expertise in banking, finance, politics, and diplomacy — to forecast the referendum results. Handicapping the election became the responsibility of whole sections of newsrooms.
Hedge fund managers and investment bankers ran numbers and sought desperately to figure out which way the political winds in the UK would blow. Billions — trillions — of dollars hung in the balance as firms and brokers tried to find a leverageable position amidst swirls of soothsaying.
By a week before the election, booking agencies were fixing the odds at roughly three-to-one against a leave vote. As it turns out, those odds, and the predictions that came before them, were wrong.
Central Planning Relies on Accurate Predictions of the Future
Central planning — the attempt by governments to predict the future, and control it — fails precisely because predicting the future is impossible. The Brexit vote is just one more example of this very basic fact of human existence. And yet, as markets have adjusted to the Brexit vote in recent weeks, governments everywhere are vowing even more intervention in the financial and economic affairs of their own countries, and even of the entire world. The failure to predict the future on Brexit means, for central planners, that there is only one solution to the chaos: even more prediction.
In Japan, for example, Bank of Japan officials are mulling lowering interest rates even further than they already have. After two decades of numbing the sensitive nerve endings of the free market with the anesthesia of artificial rate-setting, the Japanese economy is sunk in a deep torpor now shading into sleep. Successive “stimulus” plans serve only to make the patient groggier — a lesson repeated time and time again over the past twenty years. But the prescription, incredibly, is for heavier doses of tranquilizer.
The Bank of Japan surprised many when it dropped interest rates below zero last year. This inevitably did nothing but depress the Japanese economy further. Even so, BoJ officials are considering reducing rates even more in the weeks and months ahead.
As the Wall Street Journal reported on June 24th,
Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance, said he expects the BOJ to push a key interest rate on some bank reserves further into negative territory from minus 0.1% now. “They will just have to unleash everything they have” even if it may not work, he said.
This response has been repeated by economists and central banks around the world. “Central planning and economic interventionism might not work,” we hear them say, “but we have to do something.
No, we don’t.
Central Planners Rely on Bad Economics, Which Leads to Even Worse Predictions
As Ludwig von Mises demonstrated in Human Action, it isn’t that economic interventionism and central planning might not work, it’s that they cannot work. Why? Because we simply do not have the ability to predict human action in the future, either in the immediate future, or in a more intermediate future. Models, polls, booking odds, forecasts, punditry, data-crunching — all of it proves worthless in the actual event. Human beings each act in their own way, and for their own reasons. Their preferences can’t be determined by anyone else, and the ways in which they will respond to things cannot possibly be predicted with certainty.
The Brexit vote was a stunning rebuke to prognosticators everywhere, but government bankers are now holding emergency policy sessions to hammer out ways to interfere with individual human action ever more invasively. The EU leaders themselves, who might have taken this opportunity to reflect on why people in the United Kingdom were so anxious to leave their company, are planning to consolidate their union into a hulking Leviathan “superstate.”
In the minds of interventionists, the cure for state interference is always more intervention. The cure for central planning is always more planning. The cure for budget deficits is more spending. The cure for inflation and currency manipulation is to print more money. The way to get out of a deep hole is to increase the rate of one’s digging.
After the Brexit shakeup, the only thing that does seem certain about the future is that central planners really will never learn.
