Thursday, June 26, 2008

But McCain Doesn't Claim To Be An Economist

Greg Mankiw criticizes the John McCain comments mentioned in the previous post, by sarcastically stating that John McCain's crystal ball foretold those things.

Yet while McCain judgment can be questioned because he uses the same economists that he derided, he did actually have a point about the non-Austrian economists who constantly fails to predict the future. And Mankiw's retort to McCain was quite unfair because McCain has never claimed to be an economist. In fact, he has explicitly stated that he does not know much about economics.

Now of course, not even the best economist can predict the future perfectly because not all relevant information is available. However, if you follow correct theories and applies them to the relevant available data, then you should get things right most of the time. This is the same as meteorologists. Their forecasts about the short-term weather outlook are not always correct, yet they are certainly more often correct than random guesses.

Compare this to the miserable state of economic forecasting from non-Austrian economics. The vast majority of economists have virtually never been able to forecast a looming recession before it arrives. And even the few non-Austrians that have been able to forecast it, such as in the case of the latest one, Nouriel Roubini, have gotten other details wrong, such as their forecast that the recession would cause commodity prices to plunge and so also cause price inflation to collapse. With regard to that latest issue, Austrians who follow Frank Shostak's money supply definition, such as Mike Shedlock, have also gotten things wrong.

This is all the more embarrassing for the non-Austrians as their ridiculous mathematical models are often justified because the mathematical rigor and formulation will allegedly give the theories more predictive power. But because those theories and mathematical models are completely out of touch with reality, they have in fact absolutely no predictive power whatsoever (as is illustrated by the failures that McCain pointed to), in contrast to the strong predictive power of the verbal Austrian theories.


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