One of the criticisms that has emerged during the Brexit event is the criticism of experts and economists specifically. One claim that has been thrown around by many people during this event and for many years is the idea that economists are useless because they didn’t predict the financial crisis. This is a rather unfair view in my opinion.¹
For the most part, economists hold relatively boring and consistent views. For instance, most chief economists at Wall Street firms are perpetually optimistic. It’s fairly rare to find a highly negative economist on Wall Street. Or at least one who doesn’t lose their job as soon as the next bull market begins. And that’s the kicker there. The economy is usually in a period of expansion (about 75% of the time). So, interestingly, this means that these perpetually optimistic economists are right a lot more often than they’re wrong.
Of course, most economists missed the financial crisis which was an asymmetrically negative event. But most people missed the financial crisis. Black swans are hard to predict. Experts don’t have an easier time predicting unpredictable events than non-experts. I consider myself an expert in the monetary world and I was very concerned about the US housing market in 2004-7, but I did not come close to seeing the So, this doesn’t discredit the expert. It just means that unpredictable events are, well, really hard to predict.
What’s dangerous about this line of thought (that economists can’t predict big devastating events therefore they are all useless) is that we end up throwing the baby out with the bathwater. And in many cases, we even reject expert opinions in their entirety. This is dangerous. You would never stop seeing your doctor just because he/she can’t predict when you’ll contract Cancer. But that’s what we’re doing to economists and other experts when we say they’re useless if they can’t predict events like the financial crisis.
Now, don’t get me wrong. There are reasons to be critical of economists. I’ve spent a good deal of time criticizing things such as the way some economists use the Money Multiplier or some other theoretical concepts. When theory does not mesh with reality then we should be critical of the way that some economic models arrive at their conclusions. But these criticisms do not mean there is nothing of value in economics. And it certainly doesn’t mean we should start relying on non-experts for all of our policy advice.
¹ – As someone who is not an actual economist, but more of a market practitioner highly interested in economics, I believe my views here are relatively unbiased, but I could be wrong, though we should be clear that my failure to predict that bias does not mean I am a bad economist. Or a good economist. Oh wait, I am not an economist so never mind.