Re Risk goes mystical today.

There’s an interesting assessment of the global economy by Wharton just out. Well, I say, ‘interesting’ but mostly it’s just “bad news…blah blah…worse news…blah blah…marginally less bad news…etc” though it is broken down by regions so you can see how particular lines and territories are being affected (see China — ouch, if you have a poor claims record).

One comment did jump out at me, though, and that was on Japan’s experience from the “Lost Decade”. Basically, Japan has already had a load of experience in dealing with financial hard times after its economy tanked in the early 90s:

Its policy makers tried a variety of fiscal and monetary stimuli that may provide clues to how today’s global economic leaders should approach the current problems

Wharton management lecturer Adrian Tschoegl worked for six years as a macroeconomist at a Tokyo investment bank during that country’s economic rise and fall. “That’s when I realized that most forecasts of complex political and economic events are valueless,” says Tschoegl. He says he made some good calls and some bad calls when he was working in Japan, but came to believe that in today’s complex, interrelated global economic system, it is nearly impossible to predict the true impact of one policy action or another.

“We can come up with some ideas and a range of forecasts and some information about the risk of what is out there,” he says, “but the reality is that all sorts of things can come out of nowhere and suddenly hit you.”

When governments attempt to enact policies to respond to economic problems, it is hard to tell what will happen one or two steps forward as policies and market forces begin to interact, he adds.

“The problem is that very often the best thing to do is to simply not do anything,” says Tschoegl. “But no politicians can bring themselves to stand up here and say, ‘We don’t have the faintest idea of what to do, and right now we’re not going to do a damn thing.’” [emphasis added]

I don’t want to go all philosophical on you but that’s pretty much a Taoist approach to managing the economy.

Wu wei (无为) is the notion of non-over-interference, or letting things run themselves, i.e. creating general policies and direction, but not micromanaging. You can get a sense of it in risk management terms in considering the fairly recent notion that aggressively cleaning up oil spills may not be the best way to deal with them; just letting them disperse naturally is often less harmful to the environment. And I recall that in the aftermath of the Great Hurricane of 1987 more damage was done to trees by the clean-up operation than by the storm itself — had they just left many of them alone they would have survived perfectly well, if a little bashed.

Actually, there’s nothing mystical about this at all. Taoism is very hard-headed about the practicalities of government, and on one level both the Tao Te Ching and the Chuang-tzu books can be seen as instruction manuals for how to govern countries.

But I agree with Tschoegl – we’re unlikely to see any politician adopting Lao Tzu’s advice right now. Which is a pity.

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