Can problems be solved logically? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 7 March 2013
Can problems be solved logically? A  A  A

Buenos Aires, Argentina

The Dow is still climbing. It poked further into record territory yesterday. Gold did nothing.

What to make of it? Be cautious, dear reader. This is the most manipulated market in history. It could up higher, much higher. But you can't trust it.

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Did we finish explaining how the world works?

Probably not. We probably forgot to explain it. Or forgot how it worked...

We took up the question on a long walk down the beach.

"You're not disputing the importance of Aristotelian logic are you," Elizabeth asked.

"No. It's very useful to approach problems in a logical and rational way. But if you have a neighbor who is making noise late at night, you have to use something more than just logical and rational thinking. You have to use your brain. Logic will tell you that you need to do something to turn the music off. That is a simple problem. You could solve it in several ways. Even a robot could solve it. Call the police... break into your neighbor's house and turn it down yourself, or possibly just by ask the neighbor to turn it down himself.

"All of those ways might work. Logically, you will select the one that involves the least expenditure of energy on your part with the most likelihood of success. That could be as simple as taking out a shotgun and blasting your neighbor's electrical box. Or maybe whacking the neighbor himself, so the problem goes away for ever.

"Is that a good idea? Logically, the answer is 'maybe.' Because you don't know much more about the future. And since you don't know what will one does...your decision should be based, logically, on only what you do know - which is that the noise will go off.

"But here's where you have to use your head. We follow rules that aren't necessarily logical but that make civilization possible. 'Thou shalt not shoot up thy neighbor's junction box' is not necessarily logical. But it is nevertheless a useful guide to noise abatement issues.

These rules evolved over a long period of time...each one of them distilled from rich juice of mistakes, corrections, and experience of many generations that came before us. We ignore them at our peril.

"But you can perfectly well incorporate the lessons of history in your rational analysis," countered the distaff, and wiser, half of the Bonner household. "You don't have to rely on an illogical 'Thou Shalt Not.' You can just think it through."

We didn't answer. Most people will think she's right. You can try to think it through. You see a banana peel on your front step...and you can see a lawsuit headed your way. You take the banana peel off...and you probably have made for a better future.

But there are many things that just don't allow such simple analysis. I probably chose a bad example, because on the noisy neighbor level you probably can have a reasonable shot at knowing what is going on.

'Thou shalt not drop money from helicopters,' is a probably a better prohibition. It is not logical; we don't know exactly what outcome it will produce. And, logically - or at least pseudo-logically -- if people don't have enough money it seems to make sense to give them some.

Bankers regarded it as a rule...the evolved wisdom of the banking trade...discovered by trial and error over many centuries. Many times they tried printing money. Never did it produce anything but misery.

You could find a similar rule in the stock market. 'Buy low, sell high.' It's a rule...backed by long experience and bitter setbacks. It's illogical, in the sense that you never know. As far as we know the stock market will push even higher.

According to the most serious academic work, we never know whether prices are going up or down. And when they're going up, we feel a huge emotional tug to get in on the trade...we don't want to be left behind. But the rule tells us to do something else.

Will obeying the rule protect us from losses? We don't know. But if we could know, we wouldn't need the rule.

It's not that Aristotelian logic isn't useful. And it's not that you can build a bridge with 'old wives' tales.' You can't. But they each have their own limitations. Don't try to romance your girlfriend with logic. And don't try to go to the moon on instinct and intuition.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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3 Responses to "Can problems be solved logically?"


Mar 8, 2013

Yes, I feel Bill is getting into the game of predicting the future. He is falling into the same trap that many smart people in the central governments, the central banks etc do, which is to believe that one is smarter than the rest and so can predict the future better. Ofcourse, I am sure Bill is so successful that he believes he knows something that others don't. Maybe he does, maybe he doesn't. We'll all know the answer once the future moves into the present!



Mar 7, 2013

I am not sure what the purpose of this article was. Off late, Bill has been sharing his 'musings' with us - probably to prove how weall read he is!!

If you predict something long enough and give it enough time, it will eventually come true. He has been predicting imminent economic 'disaster' for at least 3 years now! All stock indices have almost doubled during this period. Just like Warnings about nuclear war was a favourite passtime during cold war days!

Like (1)


Mar 7, 2013

Very good analysis. It cleared some of doubts I had.


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