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Truth or precision? Some reflections on the economists’ failure to predict the financial crisis

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  • Nicola Giocoli

    (University of Pisa)

Abstract

The failure of professional economic forecasters to predict the financial crises has led many to question the credibility of modern economics as a reliable foundation for economic policy. If economists were unable to foresee so big a crisis, how can they be trusted to cure or prevent it? Several accounts of this failure exist. The paper offers a tentative answer based on the lessons that may be drawn from the wisdom of a short list of past and present economists: Hayek, Neville Keynes, Mankiw, Tinbergen, Maynard Keynes and Lucas. The glue to keep such an odd bunch together is the distinction between truth and precision provided by science historian Ted Porter.

Suggested Citation

  • Nicola Giocoli, 2016. "Truth or precision? Some reflections on the economists’ failure to predict the financial crisis," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 29(4), pages 371-386, December.
    • Handle: RePEc:kap:revaec:v:29:y:2016:i:4:d:10.1007_s11138-015-0335-7
    DOI: 10.1007/s11138-015-0335-7
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    More about this item

    Keywords

    Macroeconomic forecasts; Hayek; Pattern predictions; Financial crisis; DSGE models;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • B25 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Historical; Institutional; Evolutionary; Austrian; Stockholm School
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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