History Revision

I would like to share this passage taken from a book: I Am Right – You Are Wrong, by Edward de. Bono.

Economists delight in building complex models with multiple linkages to simulate economic activity.

These econometric models are believed to be valuble in predicting, for example, what would happen if interest rates were to be raised by one percent. The weakness is that the models can take in only our present assumptions and perceptions.

In the past a rise in interest rates may have dissuaded people from borrowing money to buy houses. Today, with people’s increaasing financial sophistication and the wide availability of money advice columns, a rise in interest rates might signal a fear of inflation, and in such circumstances people may want, even more, to put their money into inflation-proof houses.

So the old model, which is a summary of history, becomes valueless.

All systems, especially those based largely on mathematics, may be sound when first created, as they are largely based on the starting assumptions, concepts and knowledge; but over time, circumstances change. As the world around the sytem evolves, these systems start to degrade in usefulness, eventually becoming valueless in solving the problems they were created to solve.

To make full use of these “formulas” or systems, we need to revise them to suit current day assumptions. Without this bringing to speed of things, the formulas would be as useful as a horse and carriage. No longer do we need to just solve a problem, we need new and up-to-date ways to solve them.

History has to be revised to be useful.