Sunday, August 28, 2016

The Predictions of Economists

Today's Wall Street Journal has an interesting piece by Market Watch about the predictions made by economists regarding Brexit.  The predictions were overwhelmingly catastrophic.  Predictions from academics, from economists working for financial institutions, and the predictions from government economists were uniformly wrong and by a lot.

Market Watch concludes that economists are letting their political feelings influence their economic predictions.  The dismal science has become increasingly irrelevant since what they say and predict is increasingly wrong and irrelevant.

Predictions of higher economic growth in the US and Europe that have been pushed forward since 2009 have been ridiculously inept.  Growth has been non-existent in Europe and feeble in the US, contrary to the exuberant expectations of the economics profession.

There are a combination of factors to blame for the growing irrelevance of professional economists when dealing with macro economies.  First and foremost is the poor science that permeates most of modern macro-economics.

Undergraduates are taught material that hasn't been updated since the 1930s. Most undergraduate macro courses use IS-LM analysis, which is not much improved since JR Hicks introduced it in 1936.  That was a while ago.

Graduate courses are not much better.  Sloppy applied mathematics passes for economic theory at the graduate level with conclusions of such theory built in to the assumptions.  Try reading some of this stuff and you will come away amazed with how poor this theory and modern macro research really is.

Meanwhile, the use of statistics and econometrics is abused in situations where random sampling really isn't possible.  The researchers approach their limited historical data with strong political views to guide them.  The idea that this research is objective and free of politics is absurd.

Lets face it: the vast majority of economists are left wing idealogues. They want bigger government.  They see nothing wrong with minimum wages and other price fixing vehicles.  80 percent or higher tax rates don't bother these folks as long as it doesn't apply to them.  The live in a cloistered world where the idea of competing in a free market is an anathema.

Thus economists always predict that big government is the ticket to prosperity.  The only problem is that they are always wrong.

So, when virtually all of these left wing idealogues, masquerading as economists, forecasted that Brexit would destroy European prosperity and, in particular, British prosperity, they were substituting their own personal hopes and dreams for objective forecasts.  Both came crashing down.

Brexit was a non-event, as anyone with common sense would have predicted.

The irrelevance of economists is not new.

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