Is the Economic Crisis a Crisis for Economics? Part 3: Econoracles

Unlearning Economics

This is part 3 in my series on why and how the 2008 financial crisis is relevant to economics. The first instalment discussed why the good times during the boom are no excuse for the bad times during the bust. The second instalment discussed use of the Efficient Markets Hypothesis (EMH) to defend economists’ inability to forecast the movements of financial markets. This instalment discusses the more general proposition that crises are events whose prediction is outside the grasp of anyone, including economists.

#3: “Economists aren’t oracles. Just as seismologists don’t predict earthquakes and meteorologists don’t predict the weather, we can’t be expected to predict recessions.”

This argumentinitiallysounds quite persuasive: the economy is complex, and the future inherently unknowable, so we shouldn’t expect economists to predict the future any better than we’d expect from other analysts of complex systems. However, the argument is actually a straw man…

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