The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Wednesday, February 15, 2012

Does the human brain have trouble with current informational velocity?

That's the question I pose in this column:

"Returning to my opening remark, there is much to be said for the RBA having an extended pause until the weight of credible economic evidence pushes it in one direction or another. This could involve continued appreciation of the currency (and the trade-weighted index). It could mean a marked deterioration in the labour market signalled by a sustained rise in the unemployment rate. It might involve withering shocks from overseas.

As I’ve argued for years, today’s world is a far more complex, and information-rich, place than it ever has been before. I believe financial markets are getting more volatile (or noisy) as the speed with which information is transmitted has accelerated. There is also a serious question as to how the human brain, having had centuries of conditioning to steady information collection and processing, is currently coping with our new world order in which it is constantly bombarded with conflicting, high-velocity data, much of which is of dubious, unedited quality.

You only need to look at the online headlines run by some of our major newspapers to visualise the problem. These are deliberately designed to shock and awe, and are often misleading. Journalists who consistently peddle the end of the world prosper by grabbing the most eyeballs, which partly explains Steve Keen’s popularity.

I have no hard opinion as yet on what the RBA will do next month. Neither does the bank. Our probabilities shift every day as we learn more about the state of the world. If you want a 'point estimate', I can tell you that the financial markets think the RBA will cut rates in March. My only other contribution at this juncture is that in the absence of new view-changing data, interest rate stability would be a good thing."