Future 1, Economists 0

Trying to predict the future is a fool’s errand, but ours happens to be a field that will just not learn. Or that, at any rate, is the takeaway from an entertaining little read by The Economist:

Spare a thought for economists. Last Christmas they were an unusually pessimistic lot: the growth they expected in America over the next calendar year was the fourth-lowest in 55 years of fourth-quarter surveys. Many expected recession; The Economist added to the prognostications of doom and gloom. This year economists must swap figgy pudding for humble pie, because America has probably grown by an above-trend 3%—about the same as in boomy 2005. Adding to the impression of befuddlement, most analysts were caught out on December 13th by a doveish turn by the Federal Reserve, which sent them scrambling to rewrite their outlooks for the new year.

https://www.economist.com/leaders/2023/12/20/economists-had-a-dreadful-2023

And it’s not just macroeconomic forecasts. The article goes on to point out how we economists (maybe) botched up measurements of inequality, costs of restricting construction, measurement of social mobility over time, the impact of joblessness, and findings in behavioral economics.

Now this might seem like a rather snarky way to begin blogging in the new year (not to mention resuming work after a lengthy hiatus), but the reason I chose to do so was because of one key sentence in The Economist article:

“Another lesson is that disdain for economic theory in favour of the supposed realism of empirical studies may have gone too far.”

Maybe this particular blogger is getting a little too old and grumpy for his own good – and that is a possibility that can never be fully discounted! – but I happen to be in deep agreement with the idea that empirical studies have been taken too far. Good ol’ fashioned economic theorizing is more underrated than ever, and we would do well to get it back in the limelight.

Too true by half, if you ask me, and worth focusing upon. Also, as the article points out, let’s focus on the silver lining – yes, economics got a lot wrong last year, but on the other hand, we were wrong in all the right ways. Turns out we dodged a recession (well, so far, at any rate), we were wrong (probably) about the rise in inequality and we needn’t despair quite as much about the world as we thought we should.

That may not be the ringing endorsement our field needs, but it’s what we’ve got. Enough to work on, I’d say – let’s get on with it.