Economists’ information gap

Robert Samuelson, an economic journalist writing in the Washington Post, says: “Many economists often don’t know what’s going on”

How refreshing to read this breeze of commonsense after being buffeted by gales of expert opinion and advice from the government and its agencies, economic think-tanks or the media

The following is a precis of his article

The most intriguing thing we have learned about economists in recent decades is that they don’t know nearly as much as they thought they knew

Their forecasts are usually badly wrong:

  • They don’t see major turning-points coming in the economy, at least not until afterwards
  • They can’t explain the current growth in jobs, nor how long it will last
  • They missed the long term decline in interest rates – and can’t fully explain it
  • They did not predict double-digit inflation many years back – worse still, they advocated policies which kindled it – and they’re now baffled by current inflation remaining low
  • They were completely surprised by the recent 2008-09 financial crisis – “Why did nobody notice it coming?” Queen Elizabeth famously asked
  • And, over the last 50 years and more, they have consistently failed to forecast correctly any major shift in productivity growth, whether up or down

Samuelson concludes: “There is an ignorance gap between what economists know and what we need to know which is huge”

The cause of the ignorance gap is the very complexity and obscurity of a $20 trillion economy (United States) or an $85 trillion economy (World) – it’s changing in detailed and often-unanticipated ways – and we humans, including economists, have never been very good at predicting the future

Most economists may be extremely smart and well-informed – many are also public-spirited and generous with their time – they elevate the level of public discussion

But many exaggerate what they know and how much they can influence the economy, not least to gain and retain political relevance and power – the result is often disappointment, with government performance falling short of promises

Samuelson suggests: “A little more humility might be in order”

We say: “Better basic data on the economy would do better”

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