Is it not true that economists like it both ways?

Wolves, not bears. (Flickr photo by Tambako the Jaguar)

There is a basic problem with economic forecasting, and that problem is insuperable.

Here is the problem: Economics is only a behavioral science, and human behavior is famously impossible to predict.

(If it weren’t, you undoubtedly can think of numerous examples of the failure of economists to tell the future as in–oh, I don’t know–the Wall Street debacle.  An example in a different context: the numerous mistakes that parole boards make on something as seemingly foreseeable as the propensity of a prisoner to commit another crime?)

As a result, economists always seem to be talking out of both sides of their mouths, having it both ways, being two-faced–pick your favorite cliché.

What got me thinking about this concern in the past week has been several articles that quoted economists, starting with one of my favorite punching bags, Robert Shiller.  Continue reading

Robert Shiller concedes he was wrong. Once.

Noting that the Case-Shiller 10-City index for the U.S. rose 3.6 percent between April and July, Yale economist Robert Shiller acknowledged in the New York Times on Sunday that the suddenness of the shift from a decline of 4.8 percent between January and April surprised him.  Said he:

In my column in June, I wrote that home prices might well continue to decline for years. As of that time, the S.& P./Case-Shiller price index had fallen every month for almost three years. Add to that the prospect of continuing high unemployment and a weak economy for years to come, and the prospects for home prices did not seem rosy.

But the new data are startling. Continue reading