Friday, June 12, 2009

What's the Point of Listening to (Macro) Economists?

Steve Chapman writing in Reason Magazine has a good point:

So why should we listen to what macroeconomists say? Some economists think that often we shouldn't. Russell Roberts, a scholar at George Mason University and the Hoover Institution, told me, "I think some of macro is useful—what causes inflation, for example. I just don't believe we're very good at testing theories at the macro level in a convincing way." Many times, he says, all macroeconomists can do is concoct stories that explain events after the fact.

Microeconomists, by contrast, make predictions about the effect of policies on individual markets, and those predictions are easier to confirm or refute. They virtually all agree, for example, that price controls lead to shortages, and governments occasionally take the trouble to prove them right.

But macroeconomists can almost always claim to be right, no matter what happens. If they recommend Policy X and the economy weakens, they can say it prevented a complete disaster. If they say Policy X will hurt and things improve, they can say without it, we'd be even better off. Being a macroeconomist means never having to say you're sorry.
Economics is an art, not a science. Any given economist can look at a set of numbers and all have different subjective opinions. Forecasting the course of the economy is like picking who is going to win a football game. Nobody knows.

1 comment:

  1. Most are just shills for various investment banks. The rest are government hacks that just toe the line.
    The financial press is just over whelmed with the "prediction business". No one knows the future. Turn on CNBC, everybody on the show gets asked for a prediction.