In defence of good economics
Don’t listen to self-proclaimed economic gurus who claim to know the future – rather pay attention to what genuine economists are saying.
i’ve been intrigued, if not angered, by the way some “high priests” and others presenting at fund roadshows and commenting on TV investment shows so often see fit to rail against some of the country’s most proficient economists.
Plainly, these “whizzes” base their own thinking and forecasting on precisely the work conducted by excellent economists at larger investment houses such as Old Mutual, Allan Gray, Stanlib, Prudential and Investec.
Yes, I concede that many leading economic forecasters get it wrong. But that’s no crime. The problem is twofold, as Philip Joyce, professor of public policy and administration at George Washington University, pointed out.
“First, it’s hard to predict the future. Second, it’s really hard to predict the future when so many parts of the economy are in flux. Our models aren’t really designed for predicting massive changes.”
And these aren’t normal times, he adds. “In recessions, even the short-term numbers aren’t very good, because many factors that go into forecasts are based on assumptions that the economy will behave within some narrow band of reality, and the way it behaves is outside the band.”
These arguments have considerable validity, and the answer to readers, I’d suggest, is to pay attention to a broader range of forecasts.
It’s also claimed that mainstream economics is in denial, in which many experts refuse to look at the big picture, and simply prop up world elites. Maybe. The flipside, of course, is that there are others that do in fact underpin alternative social structures. Most, of course, are socialists and have their own agendas which are also highly suspect.
Also critical, one analyst noted, is differentiating between good economics and bad. First, good economics tests itself against the facts. Just because something is consistent with a theory does not mean that it’s valid.
Second, good economics asks: which model, mechanism or theory fits the problem at hand? And here there could be an array of answers.
Another of the big things that get lost is that there are many ways of trying to assess errors in forecasts, says prominent American economic researcher Robert Eisenbeis: “For instance, it’s possible to think about forecasts not as US GDP going to be 2.4% this year, but 2.4 plus or minus something. What’s relevant is how big that plus or minus is.”
Perhaps the most comforting view on the subject as far as I am concerned, was that of US economy Nobel Prize winner, Paul Samuelson, who warned: “A little knowledge may be dangerous; common sense may prove to be really nonsense; and the world is complicated enough without introducing further confusion and ambiguity. Even words can become treacherous if we don’t react in a natural manner to them.”
Good economics tests itself against the facts. Just because something is consistent with a theory does not mean that it’s valid.