These are hard times for economists. Their reputations are tarnished; their favorite doctrines are damaged. Among their most prominent thinkers, there is no consensus as to how — or whether — governments in advanced countries can improve lackluster recoveries. All in all, the situation recalls a cruel joke:
Recently, economists at the Organization for Economic Cooperation and Development (OECD) published a retrospective study of its economic forecasts. This qualifies as an act of bureaucratic courage, because the record was predictably dismal. Not only did the OECD miss the 2008-09 financial crisis, but it routinely over-predicted the recovery’s strength.
[. . .]
The OECD wasn’t alone. As the study notes, “groupthink” is endemic among forecasters. The International Monetary Fund, private economists and government agencies — including the Federal Reserve and Congressional Budget Office — all committed similar mistakes.
I think it was Ronald Reagan who said that an economist is someone who sees something that works in practice and wonders if it would work in theory. When it comes to soft sciences that pretend to be hard sciences, psychology once got the nod as the greatest offender. I think maybe it's time to acknowledge that the modern culprit might be economics.
Economic data can predict probable patterns and conditions but not absolute ones. That's because economic theory ultimately depends on human behavior, which is about the most unpredictable force in the universe. No grand theory, no matter how elegant, can withstand the quirkiness of the human race.