"The mathematical method must be rejected not only on account of its barrenness. It is an entirely vicious method, starting from false assumptions and leading to fallacious inferences. …There is no such thing as quantitative economics."
Whatever The Reason, It's Not For Their Abilities As Economic Forecasters
Few things have less shelf life than a daily newspaper. Within less than 24 hours, the news is like day-old champagne: The fizz is gone. Nothing wrong with that, since newspapers never claim to be more than a snapshot of things as they seem to journalists at a point in time. Economists are another matter. Economists claim to produce stuff that has greater value over a longer term, especially the forecasters. But as we've all come to learn from the global economic crisis, the longevity of the vast majority of work produced by economists isn't much better than your average newspaper. They didn't see the credit and economic meltdown coming, they don't know when it will bottom out, and they don't really know when growth will return and at what rate.
When Gordon Campbell, premier of British Columbia, visited the National Post editorial board a few months ago to discuss the deteriorating state of the B. C. economy, he expressed the frustration of someone who finds himself sailing a ship of state into a hurricane nobody forecast. "Why do we have economists?" he asked, only half joking. Why, indeed. Hundreds of economic forecasts and analyses fill up my e-mail every week. I save them all, and you could fill a book with their wildly off-the-market predictions. Like those of Bank of Canada Governor Mark Carney, who backtracked recently on optimistic outlooks for 2009 and 2010. The outlooks were only a few months old, but already overtaken by events. It's not as if the Bank is short of economic and forecasting expertise. It has upwards of 300 on staff, the biggest agglomeration of economic talent in Canada. Hundreds more economists churn out numbers at the federal department of finance, at the major banks and securities firms, and at investment houses. Not one produced an accurate prediction of the mess we're in now.
So, what's wrong with economists that makes their work not much more valuable than a daily newspaper? Two things, I think. First, economics is a dog's breakfast of theoretical ideas and alleged causal relationships that are at all times unproven and in dispute. For example, can massive government deficit spending and wheelbarrow-flows of central bank paper money lift an economy into growth and prosperity? Despite all the claims that such government action is absolutely the answer, we still don't have a confident forecast on the recovery. Life, and the global economy, is simply way too complicated to be predictable.
At heart, though, economic forecasting may be the empty mathematical game the great Austrian economist Ludwig von Mises said it was more than 60 years ago. "The mathematical method must be rejected not only on account of its barrenness. It is an entirely vicious method, starting from false assumptions and leading to fallacious inferences. …There is no such thing as quantitative economics." Which doesn't say much about the confidence we should put in the latest forecasts for growth next year — or any year.
Terence Corcoran, Editor