Jeremy Warner — The economists have had another terrible year. It's time for a complete re-think

This collective misreading has been widely attributed to the perils of “groupthink” – where opinion hugs the consensus for fear of derision - or more conspiratorially, to vested interest and deliberately misleading intent.

But there is in fact a more prosaic explanation; that as a discipline, the dismal science has quite simply lost the plot. All over the shop, economics seems incapable of answering the great questions of our time. Are we heading for deflation or inflation? Are we locked in secular stagnation or have we finally put the financial crisis behind us?

The conceit of modern economics is that it sees itself as an evidence-based science, yet if it could ever be such a thing, it is today no nearer its goal than when Adam Smith penned the Wealth of Nations, and in some respects, a good deal less so....

This failing has been explained by the Nobel prize winning economist Robert Lucas thus: “The simulations were not presented as assurances that no crisis would occur, but as a forecast of what could be expected to occur conditional on a crisis not occurring”. Thanks for nothing.

Smackdown

A stone when dropped will always fall to the ground. Human behaviour is by contrast far less certain, the result of a complex series of interactions which will always be inherently unpredictable, or what Mervyn King, former Governor of the Bank of England, has called “radical uncertainty”. The trouble with much modern economic modelling is that it assumes the laws of physics can indeed be applied to economics, or that behaviour will always respond to given inputs in a particular way. Time and again this has been proved incorrect.

The Telegraph
The economists have had another terrible year. It's time for a complete re-think

Jeremy Warner