Matthew Parris in the Times (£) corroborates one of my concerns – that forecasting brings economics into disrepute. He notes that the economy seems to be recovering, contrary to the forecasts of David Blanchflower, Jonathan Portes and Martin Wolf. And he asks: is there any point to economists?:
We can all make vague, undated long-term predictions., but the expertise we look for in professional analysts is to name the dates. Where’s the evidence that economists are any good at this?…In their timings they’re hardly better than astrologers…Perhaps if we stopped calling them economists and renamed them augurs we’d be halfway to cutting their professional status down to size.
This is half-right. It’s true that economists’ cannot make accurate forecasts when we need them – a fact which predates the recent recession and recovery. And increasingly, we know why.
But it’s also half-wrong. Economists have a lot to offer; there’s much more to us than incompetent seers.
This conflates two different things – forecasting and prediction. A forecast is a description of the future which might go awry because of countless confounding factors; because of these, a wrong forecast might well not discredit the forecaster’s theory. A prediction, though, is an implication of a theory which can apply to existing facts, if only we look for them. And economists can and do make many reasonably successful predictions, such as:
– The efficient market hypothesis predicts that actively-managed funds won’t justify their high fees.
– Complexity economics predicts that economists generally won’t forecast recessions succesfully.
– Behavioural economics predicts that overconfident investors will makemistakes.
What I’m saying here is, in truth, highly Keynesian. Keynes famously said that it would be “splendid” if economists could be seen as humble competent people likedentists. And whilst dentists can give warnings and advice, and fix some problems, they cannot foresee the future. And nor do they aspire to do so.
A follow-up on economists