Bringing economics into disrepute

Matthew Parris in the Times (£) corroborates one of my concerns - that forecasting brings economics into disrepute. He notes that the economy seems to be recovering, contrary to the forecasts of David Blanchflower, Jonathan Portes and Martin Wolf. And he asks: is there any point to economists?:

We can all make vague, undated long-term predictions., but the expertise we look for in professional analysts is to name the dates. Where's the evidence that economists are any good at this?...In their timings they're hardly better than astrologers...Perhaps if we stopped calling them economists and renamed them augurs we'd be halfway to cutting their professional status down to size.

This is half-right. It's true that economists' cannot make accurate forecasts when we need them - a fact which predates the recent recession and recovery. And increasingly, we know why.

But it's also half-wrong. Economists have a lot to offer; there's much more to us than incompetent seers.

Here, though, economists have ourselves to blame. In making forecasts, we bring our profession into disrepute by giving laymen like Matthew the impression that our job is the futile one of forecasting when it's not. This means that we're not taken sufficiently seriously when we're right.

This has both a specific and a general cost.

The specific cost is that it gets the austerians off the hook. Matthew is inviting us to believe that Keynesians' failure to predict the current upturn discredits their criticism of austerity. But it doesn't. The proper Keynesian claim was not that austerity would prevent recovery, but that it would cause the economy to be weaker than would otherwise have been the case. Granted, this claim cannot be proved definitively by RCTs. But it is highly plausible because the mechanisms through which austerity might support the economy have been absent, and so Keynesian models have been more relevant than anti-Keynesian ones. It's because of the danger of conflating these two claims that I advised Keynesians not to forecast on-going recession.

The more general cost is that the failure to predict discredits economics more generally. Picture the scene. Jonathan is debating his correct view on immigration with some Tory. The Tory asks: why should we believe you when you didn't see the recovery coming? His reply is, of course, illogical, but it will have some plausibility with the unscientific layman. 

You might reply that making a prediction is an essential part of any science, as it's a way of testing theories against data.

This conflates two different things - forecasting and prediction. A forecast is a description of the future which might go awry because of countless confounding factors; because of these, a wrong forecast might well not discredit the forecaster's theory. A prediction, though, is an implication of a theory which can apply to existing facts, if only we look for them. And economists can and do make many reasonably successful predictions, such as:

 - The efficient market hypothesis predicts that actively-managed funds won't (pdf) justify their (pdf) high fees.

 - Complexity economics predicts that economists generally won't forecast recessions succesfully.

 - Behavioural economics predicts that overconfident investors will make mistakes. 

What I'm saying here is, in truth, highly Keynesian. Keynes famously said that it would be "splendid" if economists could be seen as humble competent people like dentists. And whilst dentists can give warnings and advice, and fix some problems, they cannot foresee the future. And nor do they aspire to do so.

Comments

[Mil]

I have an opinion about dentists which coincides with my kind-of-own profession of language trainer. The job of both, when carried out correctly, is to make further actions unnecessary.

A person who learns how to communicate independently of their trainer is a person who does what the trainer should train them to do.

Similarly, a dentist who properly inculcates preventative dental care sets up their (no-longer) patients for life.

A little short-sighted at a personal level - it does tend to reduce one's income rather. But as a goal for all professionals - eliminating client dependence, rather than perpetuating it - perhaps this is one for the economists too?

[Nick]

Teeth don't respond to incentives or new information, while people do. In that sense, economist can never predict the future in a broad sense (macro, basically). Plenty of the research is still kinda useful for other reasons but not for prediction.

[paulc]

Not sure what Parris is on about. Portes was forecasting recovery in 2013/14 back in 2012.

"The National Institute for Economic and Social Research (NIESR) is now forecasting 1.1% growth in 2013, down from 1.3%, due to a weaker global outlook." That was Nov 2012.

Is he referring to the actual percentage points, quarter of a percent either way? Pedantic or what! Otherwise I think he's been on the sauce.

[Dipper]

quite. Parris was unusually glib. An economist is more like a personal trainer or a GP, not a fortune teller. Economists explain how our actions and experiences have brought us to here, and what our options are for the kind of life we want to live in future, but what kind of future we have is up to us and our choices.

[James Reade]

Spot on. Forecasting is a separate field from economics. You could have the perfect model of the economy, yet the moment something changes, your forecast from that model will be totally wrong. Occurs in all fields, of course, yet nobody gets quite so agitated when the predicted arrival of a mission to the moon is updated after the rocket gets knocked off course, and majors on about the original wrong forecast.