Mere Economics Isn't - Forecasting
In this series of posts, I'll describe five things that mere economics is not. Note, this post was written with Scott Burns and was originally published at The Independent Institute.
Forecasting
If your only impression of economics comes from talking heads on CNN, MSNBC, or Fox News, it’s forgivable that you’d think economists specialize in predicting next month’s interest rates, price level, unemployment rate, or stock prices.
That they can’t is itself a lesson in economic reasoning.
If economists were capable of such feats, would they be moonlighting on CNN, or would they be sipping mojitos from their island villa in the Caribbean?
Or ask yourself this: If economists possessed crystal-ball knowledge, wouldn’t their courses always have the longest waiting lists? What student could afford to be without this enriching knowledge?
We want to be careful. If economics was incapable of making any predictions, that would strip it of any scientific relevance.
Economic theory permits—even demands—that economists make pattern predictions. Pattern predictions are more humble and circumscribed in nature. They predict that certain outcomes will emerge, but remain silent on the timing and magnitude of such events.
For example, economics predicts that loose monetary policy will result in rising prices. But economists cannot pinpoint precisely when those higher prices will kick in, exactly how high prices will rise, or which prices will increase first.
When it comes to understanding social phenomena, the economic point of view grants us clarity, not clairvoyance.
Economists understand better than most that the economy is far too complex to treat like an abacus or a game of tic-tac-toe. There are too many variables at play, too many entangled relationships to unwind, to render such bold and precise predictions.
Not to mention, economics examines volitional beings. Humans are quite a different beast from the subject matter of the natural sciences. Inanimate matter—the object of examination in the physical sciences—never talks back. It behaves mechanistically. The determinism of the hard sciences makes point predictions much easier.