The Jean Dixon Effect

As our economic meltdown continues, it's worth stepping aside for some perspective.

I have no idea where the markets are heading. Professional pundits are paid to make predictions about where the markets are headed. Some of those pundits will actually be correct. Does this mean they genuinely understand the dynamics of the situation, or are they no better than the broken clock that is correct twice a day? I don't know the answer to that either.

I find it helpful to put pundits in perspective by invoking what I have come to call the 'Jean Dixon Effect'. For those of you old enough to recall, Jean Dixon  was a psychic who predicted the assassination of Kennedy. She became famous after Kennedy was shot, and some folks then began to think that she actually knew what she was talking about.

When markets move this way or that way, there will always be some market analyst who was on the correct side of that move. The talking heads then trot out their new found expert to get that expert's opinion on where the market will go in the future. Will that new expert be correct or incorrect? The Jean Dixon Effect causes us to view that expert with a less critical eye than we otherwise might.

As I think about this some more, we are also victims of the converse of the Jean Dixon Effect -- we ascribe misplaced expertise to those whose actions have demonstrated failure after failure. It's almost embarrassing to look at the predictions of soundness and stability earlier offered up by some of our leaders. Witness the early testimony of Paulson and Bernanke (say back in March of this year) on how fundamentals were just fine, etc., etc. The converse of the Jean Dixon Effect allows us to listen to these guys and still grant them some level of credibility.

The big question that I don't know the answer to: What will the Chinese do?