In a discussion on uncertainty and the hopelessness of accurately modeling what will happen in the real world – in M. Szenberg’s Eminent Economists: Their Life Philosophies – Nobel laureate Kenneth Arrow comes up with what is probably the most plausible reason:
Why economic forecasting is such a worthless waste of timeIt is my view that most individuals underestimate the uncertainty of the world. This is almost as true of economists and other specialists as it is of the lay public. To me our knowledge of the way things work, in society or in nature, comes trailing clouds of vagueness … Experience during World War II as a weather forecaster added the news that the natural world as also unpredictable.An incident illustrates both uncer-tainty and the unwilling-ness to entertain it. Some of my colleagues had the responsi-bility of preparing long-range weather forecasts, i.e., for the following month. The statisticians among us subjected these forecasts to verification and found they differed in no way from chance. The forecasters themselves were convinced and requested that the forecasts be discontinued. The reply read approximately like this: ‘The Commanding General is well aware that the forecasts are no good. However, he needs them for planning purposes.’
Lars P. Syll | Professor, Malmo University
2 comments:
And This is where Lars sort of begins to go over the top radical. Understanding the economy is neither worthless nor a waste of time.
A simple model, like sectoral balances, doesn't pull any tricks, make outrageous assumptions, or claim to predict the weather. It doesn't seem a worthless waste of time to me. Granted, most economists scoff at such simple boring stuff, they prefer to keep themselves amused with all sorts of arcane complexity but serious economists (that have to make money, or starve), use all sorts of analysis, even sophisticated math and statistics, to make predictions every day. It isn't sexy or interesting, ground breaking stuff.. but it isn't idiocy like the Rube Goldberg machines of government and university economists.
I don't think that's what Lars is implying, Ryan, He is continually writing about about the misapplication of statistics in econometrics in the tradition of Keynes. Accounting-based models are quite different.
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