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February 19, 2010

Wanted: Lucid, clearheaded thinking

Muddleheadedness can be costly, particularly when it obscures a clear view of the economy.

Consider this: Most business- and world- leaders, eminent economists and thought leaders failed to foresee correctly the recent upheavals in the global economy - the financial crisis of late 2008, the recession and the subsequent recovery.

However, neither the recession nor its end should have come as a surprise. I've presented detailed evidence of this claim, in a guest column in CEO World magazine last week. As I show there, the surprises happened because signals in plain sight were resolutely and repeatedly ignored !

Considering the overriding importance of the macroeconomy - it affects the livelihood of millions of people, the business prospects of thousands of companies, and often the survival of governments - this collective foresight failure is puzzling and quite unforgivable.

The good news is that, I believe, improving on this foresight deficit needs neither magic nor math (as in complex mathematical models). It doesn't need clairvoyance or crystal ball gazing. Most often a crystal clear view of what's happening in the real world, and a clear eye to discern relevant signals that are often in plain sight are good enough. But those are precisely what's lacking - obscured by siloes of professional specialization, cognitive biases, flawed 'conventional wisdom', predilections of various kinds and so forth.

I will present a more detailed analysis of the reasons behind this lack of foresight, and how a more clearhead view of the economy can be fostered in a future post.

Read the guest column, The recession has ended and other surprises.