That economics is all about forecasting!
After the 2008 financial crisis, the Queen famously asked LSE academics “Why did nobody notice it?” However, she should have elaborated and asked: why have economists failed to predict every crisis in the past 150 years? With their use of complex mathematics and some of the best brains, surely they should be doing better than this?
“Nobody has a clue,” Jan Hatzius, Goldman Sachs’ chief economist, said to Nate Silver in the book “The Signal and the Noise”. “It’s hugely difficult to forecast the business cycle. Understanding an organism as complex as the economy is very hard.”
According to Hatzius, forecasters face three fundamental challenges: first, it is very hard to determine cause and effect; second, that the economy is always changing and, third, that the data that they have to work with is pretty bad.
With that in mind, always remember the following two quotes from the economist J. K. Galbraith:
“Economists don’t forecast because they know, they forecast because they’re asked.”
“The only function of economic forecasting is to make astrology look respectable.”