The economy is affected by many variables, and in some cases, predictions can affect the economy. We will look at the difficulty of forecasting and ways to reduce uncertainty.
Economics emphasizes human rationality. In general, economic laws apply well to societies with many rational people and a high level of public awareness. This is because the rational decisions of each member of the society combine to increase the economic efficiency of the society as a whole. Therefore, no matter how good the economic policy is, if the quality of its members is poor, good results cannot be expected. In addition, it is important to increase the level of understanding and participation of the members of society before implementing economic policies. For economic policies to be successfully implemented, the basic purpose and objectives of the policies must be fully communicated, and members of society must have the ability and willingness to implement them.
Even if a scientific analysis and prescription for economic problems have been made, the prescription should not be physically applied to real society without a close examination of the flow of public sentiment and the economic and social atmosphere. Since the direction of the economy depends largely on the direction of public sentiment, implementing policies without considering changes in public sentiment may have the opposite effect. This is one of the reasons why political stability and social trust are the foundation of economic growth. For economic policies to work effectively, it is necessary to read public sentiment and adjust policies accordingly.
Economics assumes human rationality, but it must also take into account animal instinct. Humans are easily emotional, and the more unstable the economic and social environment, the more animal instinct is triggered. In this sense, economic stability is also a fundamental issue. If social stability is not achieved, economic instability will increase, which can lead to a vicious cycle that further fuels social unrest. In particular, during a recession, individual selfishness and anxiety are heightened, and there is a high probability of speculation and irrational consumption behavior. These phenomena can further increase economic insecurity.
And because the economy is based on these human economic behaviors, it is difficult to predict. For example, in the case of weather forecasting, the weather is not affected by the forecast itself, even if tomorrow’s weather is forecast today. This is not the case with economic forecasts. For example, if the government predicts an economic downturn, many people take steps to prepare for it. Conversely, if the government predicts an economic recovery, people will act accordingly, so the economic forecast itself affects economic fluctuations. Therefore, it is normal for predictions to be slightly off. Predictions such as “it will work” or “it won’t work” are likely to be self-fulfilling prophecies. The problem with these self-fulfilling prophecies is that they can exacerbate economic instability, so economic policymakers need to be cautious.
Economic issues are closely related to human value judgments. For example, “A” is young, competent, and makes a lot of money even though he has no dependents. In contrast, “B” is old and incompetent, but earns a small salary even though he supports many family members. How should we deal with the income gap between the two? This income gap cannot be seen as a simple economic issue, and it requires a discussion of social fairness and moral values. And house prices are rising faster than the salaries of those who do not own their own homes. Or the construction of luxury housing is increasing. How should housing policy be formulated in such a situation? This is a problem that requires social consensus and political intervention, rather than simply leaving it to the logic of the market. Such issues are likely to be influenced by emotions and value judgments. Because economic inequality can be a source of social conflict, it is important to consider policies to mitigate it.
Human behavior is complex, oscillating between reason and emotion, but people are sensitive to their own economic gains and losses. People who regret and dwell on missed opportunities regret the situation and vow to succeed next time if the situation comes again. However, even if a similar situation comes again, they often fail to consider that the environment has changed considerably from the past. People tend to focus too much on their own actions and overlook the actions of others. For this reason, economic forecasting is difficult. The economy is a complex system that results from the interaction of many individuals, companies, and governments, so it is difficult to accurately identify actual economic trends based on simple theoretical predictions. As a result, economic policymakers must respond quickly to changing economic conditions through continuous observation and analysis.
