The failure to predict the current economic crisis has lowered the public’s esteem of economists, as The Economist makes plain. The hit to our reputation is well-deserved.
This is not to sell economics short. The explanatory power of the economic way of thinking is incredible. Reading and understanding Bastiat’s “What Is Seen and What Is Not Seen” will change the way you see the world.
Knowing what opportunity costs are, and that incentives matter, allows you to almost literally see the unseen. It is almost magical. It is the stuff of poetry.
The fact that cities of millions like Paris and New York are fed every day without fail – overfed, even – while producing almost no food themselves, and without anyone directing the process, can be explained with two words: spontaneous order.
Pretty cool. But economists, just like other mortals, cannot predict the booms and busts of the business cycle. That some have claimed this miraculous power is a sign that economists have fallen prey to hubris. Our shaming in the public eye is a direct result of overstepping our boundaries.
Turn your tv to CNBC or some other business channel. Some mystic parading as an economist will try to predict which way the stock market will move tomorrow, or which stocks are will beat the market. Nobody knows that. Nobody could possibly know that.
If a stock really is a good buy, then people will buy it, driving up its price until it is no longer a good buy. Anyone claiming they can beat the market long-term probably also has some snake oil to sell you. The fact that a few people have had inordinate success, like Warren Buffett, is an artifact of the laws of probability.
Think about it. We can’t predict if the stock market will go up or down. How can we presume to think we can understand longer-term, macro-level movements like business cycles? There are more theories than there are economists.
Still, some people have said that they understand. And they shall give unto us of their wisdom. Some of these people hold political office, or advise people who do. They are putting their theories to the test; they are finding no effect. No wonder people are thinking so ill of economists lately.
Our hubris deserves all the public scorn it gets and more. My deeply held fear is that this disdain will trickle down to from where it is deserved to where it is not deserved.