Can we predict the economic future?
Date posted: November 20, 2012
Mary Walden asks her husband, N.C. State University economist Mike Walden, “After all that time you spent in school and for the last 35 years teaching about the economy, why can’t you predict it?”
Dr. Walden responds:
“Well, excellent question. … Of course, when I give talks around the state, I’m always asked to look into my crystal ball, tell people where I think the economy is going in terms of jobs, et cetera. I’m always flattered that people ask me, but I always say ‘Hey, don’t take a grain of salt, take a salt shaker and pour on my predictions, because no guarantee that they’re going to be right.’
“And I think there are three main reasons why economists have a difficult time predicting economic future. One, we’re dealing with human beings. We can’t run controlled experiments, for example, like our colleagues in physical sciences and always say that A is going to cause B, because you’re going to have human beings. You’re going to have the subjectivity of human beings. Human beings may not act the same now in terms of dealing with economic circumstances they did in the past. So, I think that’s one reason.
“Secondly, quite frankly, economists don’t like to take chances. If we look at … the track record of the economy, most economic variables move in a rather narrow range, and so it’s very difficult for us to look into the future and say it’s going to break out from that range. And so we tend to be, and I don’t mean politically, but we tend to be statistically fairly conservative. We tend to think that the future is going to be somewhere like the past, which means when there’s a big change in the economy, we’re going to be wrong.
“And then lastly there are lots of things in the economy that are simply unpredictable — things that move the economy — like inventions, innovations, things that come out of labs and experiments — that we’re not capable necessarily of predicting and certainly other people are, like the microchip. Who could have predicted the microchip would have caused the information technology revolution?
“I think the best economists can do really is to predict tendencies in the economy, not precise outcomes.”
Category: Economic Perspective