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. (more…)