This time on how Economics as an academic discipline will not have to have the wholesale changes some peoples are suggesting.
He is right when he says the focus of economists and economic teaching is not on prediction. However, I would also say that economists HAVE sold the idea that they can predict when talking to people, even if they personally realised this isn’t the primary role.
In some sense this comes back to Friedman. During the positivist revolution in economics he stated that it didn’t matter so much what we assumed – as long as it was predicatively accurate. Furthermore, our “value” for policy analysts and the such has often been tied to predictive accuracy. Here we never agreed with this.
There are two ways to understand current economists methinks:
- Economists want to explain and understand – and that is where the value is: This fits the academic economist view, but often ends up with no predictions.
- The Tarot card view: This fits what economists do when they have to make predictions. They use archetypes (models of aggregate behaviour), historical knowledge (data), and intuition to get a feeling of where the economy will head and the risks around it. Even the more technical models (think DSGE models) have elements of this.
Both these services have value – by building knowledge and understanding. But economics as a discipline should be based on its ability to adequately explain and provide understanding – not its ability to predict (especially given the issues with data).
Economists add value by describing, explaining, and painting risks – but they do not have magic time traveling powers.
This all reminds me of: