Wednesday, January 31, 2007

Something useful

The economy is doing well. Housing-doomsday was wrong. Economists make crummy forecasts. In fact, if they made better forecasts, more of them would be rich.

There are many reasons to be analytical in discussions of the future. Survival requires no less. But this is different from quarterly forecasts of macroeconomic aggregates. We simply do not have the equipment to get this right. Our best models are hopelessly inappropriate in light of the complexity of the real thing.

What the best economists get right is to achieve a better understanding of history. (No small thing.) And that may help us to be better prepared for what the future may bring.

A wonderful example is Deepak Lal's Reviving the Invisible Hand. Once we train (and reward) young scholars to decode (and learn) history -- instead of making silly macroeconomic forecasts -- we will have done something useful.