Greenspan's Flutter

So maybe the "dismal science," as many economists call their profession, isn't so much a science as it is an art.

In a speech last week, Alan Greenspan argued against critics who want the central bank to use stricter rules in adjusting interest rates and the nation's money flows, and to know better how markets will react to its decisions.

Speaking more like Heisenberg than Newton, the Federal Reserve chairman said: "Uncertainty is not just an important feature of the monetary policy landscape; it is the defining characteristic of that landscape."

This Fed humility in trying to guide the cosmos of a global economy, however, goes only so far.

Mr. Greenspan didn't say central bankers do only seat-of-the-pants guesswork. Hundreds of Fed economists still collect an immense amount of data and feed it into computer models. But in a world full of shocks - from country bankruptcies to terrorism - oversimplified economic models can fail. Then subjective judgment must step in.

The Fed can't always act by calculated forecasting but, as Aristotle wrote, in appreciating "when things come about contrary to expectation but because of one another."

Past isn't always prologue in economics. The Fed is faced with a "complexity of a world economy whose underlying linkages appear to be in a continual state of flux," Greenspan said.

Central banks have learned much about how to stabilize markets, but they are also in a losing race against ever more data and complexity.

The Fed can no better forecast next year's economic growth than it can predict whether the flutter of a butterfly in China will lead to a hurricane in Baltimore.

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