The economists’ confession.
Mar 24, 2014, Vol. 19, No. 27 • By ANDREW FERGUSON
Economists, in other words, not only fail to predict the future, they can’t even predict the present. The OECD offered various reasons for its abysmal record. “The OECD forecasts,” the report says, “are conditional projections rather than pure forecasts.” Why this should let them off the hook is unexplained. The conditional projections, they go on, “rest on a specific set of assumptions about policies and underlying economic and financial conditions.” Oil prices, fiscal policy, the course of the euro crisis—all of these, they say, are beyond an economist’s control and bound to throw him off his game.
And we shouldn’t doubt it. The oft-cited (by Democrats or Republicans, depending) Congressional Budget Office makes similar demurrals when it owns up to its forecasting failures, which are regular and very large. “Sources of large forecasting errors,” one CBO report says, “have included the difficulty of predicting: Turning points in the business cycle—the beginning and end of recessions; changes in trends in productivity; and changes in crude oil prices.”
The world is a crazy place, no doubt about it. Most events that occur—even the actions of governments, sometimes—are beyond the control of economists, much as they might like to daydream otherwise. But isn’t that the point? This admission just begs the question of why anyone should pay attention to their wizardry to begin with. The forecaster’s chief conceit is that by feeding numbers into one end of a statistical model he can see the future come out the other side. The conceit touches off a phantasmagoria of argument in Washington, where politicians and policymakers sift the numbers from one set of econometricians or another, and then use their favorite figures to determine how they will orchestrate the activities of the folks back home. In thrall to economists, government policy-making is a fantasy based on a fantasy.
Perhaps I’m wrong to say the OECD economists aren’t very good at what they do. They may be champs, for all I know. It’s just that what they are trying to do is worse than worthless. The fault, if that’s the word, lies with the people who are soliciting their forecasts, and why.
In an autobiographical essay published 20 years ago, the left-leaning economist Kenneth Arrow recalled entering the Army as a statistician and weather specialist during World War II. “Some of my colleagues had the responsibility of preparing long-range weather forecasts, i.e., for the following month,” Arrow wrote. “The statisticians among us subjected these forecasts to verification and found they differed in no way from chance.”
Alarmed, Arrow and his colleagues tried to bring this important discovery to the attention of the commanding officer. At last the word came down from a high-ranking aide.
“The Commanding General is well aware that the forecasts are no good,” the aide said haughtily. “However, he needs them for planning purposes.”
Andrew Ferguson is a senior editor at The Weekly Standard.
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