Unfortunate predictions?
David Farrar links to an article from 1 year ago – where economists were rather positive about the outlook for New Zealand. I was the same – I thought we would be out of a drought induced recession by September 2008.
But things happened that we couldn’t foresee. Lehman brother’s collapse was the issue that really turned things around.
However, even if this hadn’t happened the idea of the recession ending in September would have been wrong – as the impact of falling house prices on consumer spending was stronger than I had expected.
As MyNameIsJack said in the comments on Kiwiblog:
Economists very rarely make accurate predictions, in fact I would lay money on more meteorologists being right next week than economists. Economists are good at explaining why after the event, lousy at explaining what and when in advance.
Economists don’t have perfect foresight, but when we have the data we are pretty good at describing what has happened – sometimes 😛
I would suggest that MyNameIsJack is wrong. Economists are just as good as meteorologists at predicting next week. Try getting a meteorologist to predict weather a year ahead and see how well they do. The real point is, economists may not be that good at prediction, but is anybody else any better?
“The real point is, economists may not be that good at prediction, but is anybody else any better?”
I completely agree with this Paul – but I also don’t think economics should be judged on the accuracy of its predictions.
I realise that this doesn’t weigh well with Friedman’s view of us as “empirical positivists” – but I think our discipline is a lot better at framing and even describing issues then it is at providing predicitions.
Weather forecasters like economists because the latter make the former look good 🙂
“Weather forecasters like economists because the latter make the former look good”
Hey – they have better data 😛
“I also don’t think economics should be judged on the accuracy of its predictions.”
Jeez what a cop out.
For the record, several people predicted the broad direction this thing was going to go in. Even I predicted the housing slowdown a few years ago (although to be fair I did say it would happen quicker than it did). And an economist I ain’t.
I think the problem with many economists is they appear to be wed to over-simplistic models, for seemingly ideological reasons. (This is a generalisation, of course). “The market usually finds an alternative in case of scarcity” becomes “The market always finds…”, to “The market will find… in this specific case”.
But it’s OK, you don’t have to be measured by your predictions.
“But it’s OK, you don’t have to be measured by your predictions.”
I think in order to make sense of my statement we have too look at my view on what economics is.
I view economics as a way of framing issues – not as the set of predictions that economists go out and make. To get from a frame of reference to a prediction we have to make value judgments – testing whether predictions come true simply asks if these were the right value judgments.
I don’t think economic science in itself is about these value judgments – sure a whole lot of economists will go out there and make predictions, but if these are wrong it can usually be put down to initial value judgments being wrong.
There is a flip side to not believing that economists should be judged by their predictions – I don’t think economists predictions can be very good in the first place. The accuracy of predictions has more to do with the individuals involved being able to sort through data and value judgments than it has to do with economic models. As a result, if economists do want to predicit there is definitely something missing from economic education.
As a result, given my view of economics, the statement that “the success of the economic method does not depend on its predicitive accuracy” is as much an insult to people who believe good prediction is possible as it is a “cop out” for economists when their models go awry.
“For the record, several people predicted the broad direction this thing was going to go in. Even I predicted the housing slowdown a few years ago (although to be fair I did say it would happen quicker than it did).”
On this note I would say that close to 95% of economists expected this to happen – just more gradually. Turning points are near impossible to predicit – which is again why I think prediction is not a good criteria for judging economic analysis.