Freedom Line Blog

Alex Pollock’s contribution in The American, a publication for the American Enterprise Institute (AEI), is much needed medicine for the regulatory fever about to be unleashed when the Dodd-Frank “financial reform” bill is implemented.

The key to understanding boom-and-bust cycles, according to Pollock, is realizing the limits of a mathematical model’s ability to predict the future.  To quote Pollock quoting a colleague, “The model works until it doesn’t.”  That is, until someone falsifies the model by acting in a way contrary to the model’s assumptions.  Then everybody who uses the model is out a lot of money.

So, if profit-hungry businesses can’t figure out a way to avoid losing money, what in the world makes the denizens on Capitol Hill think they can create a federal agency with such powers?

Hubris and stupidity.  Political cultivation of those qualities is a science unto itself.

Weekend Bonus Link: For another theory of the business cycle, click here.