Howard Marks: There Is No ‘Economic Machine’

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In his recent interview with the Market Mind Hypothesis Symposium, Howard Marks explained why there is no ‘economic machine’. Here’s an excerpt from the interview:

Marks: In your last sentence about the two episodes [in history]… would limit me too much so if you don’t mind I’m gonna go way beyond that because I think that my answer to this question is really central to our whole discussion today. The first few words of reading what Russell said includes the reference to the economy as mechanical.

And I think that that is not helpful. Applying the word mechanical, again like the last question suggests that it’s governed by the rules of physics, the laws of nature, that it’s a science, that it performs the same each time, that it is repeatable and studyable and extrapolable.

I think these are all wrong, and in fact I always like to aggressively remind people that I’m not an economist but I remind people that economics is called the ‘dismal science’, and I’m not sure it’s a science at all.

But if it is it’s certainly dismal in the sense that it is not… it’s not like physics where if you do A you always get B, sometimes you get C, or sometimes nothing at all.

Richard Feynman, the great physicist once said physics would be much harder if electrons had feelings. You walk into a room you throw the light switch the light goes on. It always goes on because every time when you throw the light switch the electrons flow from the switch to the light, they never forget to flow, they never decide to flow in a different direction, they never flow from the light to the switch, they never go on strike, or complain that they’re under compensated.

So the point is that economics is not a science in my opinion in the sense that if A happens… you know science is all about causality and predictability, and if A happens then B is sure to happen, well that’s certainly not true in economics.

If A happens B might tend to happen most of the time, that doesn’t make it a science, so now let’s talk about using these concepts to refer to investing not economics.

You can listen to the entire discussion here:


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