Why do people waste time on worthless economic forecasting?
from Lars Syll
The other day yours truly was interviewed by a public radio journalist working on a series onGreat Economic Thinkers. We were discussing the monumental failures of the predictions-and-forecasts-business. But — the journalist asked — if these cocksure economists with their “rigorous” and “precise” mathematical-statistical-econometric models are so wrong again and again — why do they persist wasting time on it?
In a discussion on uncertainty and the hopelessness of accurately modeling what will happen in the real world – in M. Szenberg’s Eminent Economists: Their Life Philosophies – Nobel laureate Kenneth Arrow comes up with what is probably the right answer:
It is my view that most individuals underestimate the uncertainty of the world. This is almost as true of economists and other specialists as it is of the lay public. To me our knowledge of the way things work, in society or in nature, comes trailing clouds of vagueness … Experience during World War II as a weather forecaster added the news that the natural world as also unpredictable.
An incident illustrates both uncer-tainty and the unwilling-ness to entertain it. Some of my colleagues had the responsi-bility of preparing long-range weather forecasts, i.e., for the following month. The statisticians among us subjected these forecasts to verification and found they differed in no way from chance. The forecasters themselves were convinced and requested that the forecasts be discontinued. The reply read approximately like this: ‘The Commanding General is well aware that the forecasts are no good. However, he needs them for planning purposes.’
Trade and inequality: The role of economists
Dean Baker1Copyright: Dean Baker, 2008
Economists have come to play an enormously important role in public policy debates.
There use of their expertise to effectively act as priests, telling the less informed public what the impact of their various policy proposals will be on the economy’s future performance.
Economists often tell the public that its preferred policy path will not have the intended effect, and may actually lead to outcomes that are the opposite of what is intended.Since economists, or at least the mainstream of the economics profession, are accorded enormous respect by the major media outlets, any politician who challenges the prognostications from this group is likely to be ridiculed in the media. This ridicule is generally sufficient to derail the career of any politician who does not already possess an independent and determined base of support and/or a vast amount of wealth that she can use to sustain her political career.
As a result of their ability to influence the media, economists can be incredibly important in steering public policy, often in directions that may not be supported by most of the country. Trade policy provides an excellent example of a case in which the mainstream of economics profession has been adamant in pushing economic policies that clearly do not have the support of the bulk of the public.
The role of economists in trade debates is especially pernicious because there is no area of economics in which economists have been less honest about what their models show. They have consistently exaggerated the benefits that are predicted by standard trade models.
At the same time they have ignored or downplayed the distributional consequences. In doing so, they consistently deride those who raise questions about the path of recent trade policy for failing to accept fundamental realities of the modern world.
