Tuesday, June 22, 2010

Too stupid to know you are stupid

The Dunning-Kruger effect - our incompetence masks our ability to recognise our incompetence. Excerpt from The Anosognosic's Dilemma: Something's wrong but you'll never know what it is:
Dunning and Kruger argued in their paper, “When people are incompetent in the strategies they adopt to achieve success and satisfaction, they suffer a dual burden: Not only do they reach erroneous conclusions and make unfortunate choices, but their incompetence robs them of the ability to realize it. Instead, like Mr. Wheeler, they are left with the erroneous impression they are doing just fine.”

Monday, June 21, 2010

Migration versus currency deflation

Interesting thoughts from a blog post about economic coping mechanisms: American inter-state migration, Australian currency deflation, but European economic implosion?

Australia has a really effective adjustment mechanism to a decline in demand for its product. When metals prices/demand falls the Australian dollar falls. ... Suddenly Australian labor can (again) produce commodities profitably…

America is a large country with many sub-economies on different cycles but with a common currency. If terms of trade move against Texas (as happened in the mid 1980s when the oil price collapsed) you can’t have the Texas Dollar fall because there is no Texas dollar. Houston – we have a problem.

[T]he American solution to (say) a recession in Houston is for people to move out of Houston. America has an amazingly mobile population – with almost all of the world’s busiest airports inside the US. Almost nobody seems to live in the town in which they are born. ... because people in the US move when one part of the economy is struggling. ...

Alas Europe has neither much internal migration nor any ability for say the Greek or Spanish Euro to devalue against the German Euro.