MAKING SENSE -- September 4, 2012 at 11:34 AM ET
Which Economists Can See the Future?
Nassim Taleb and Nouriel Roubini predicted the last collapse. But even they don't think that means they'll be able to predict the next one.
Paul Solman frequently answers questions from the NewsHour audience on business and economic news on his Making Sen$e page. Here is Tuesday's query:
Name: Mike Sachse
Paul Solman: It's been more than eight months since I last used this line here on Making ¢: There are two kinds of economists - those who don't know the future and those who don't know they don't know. If that's so, then it makes little difference which economists "have the best track record." Why? Because the best record is more likely a function of luck than foresight. And even if it's foresight, how would we ever know? Worse still, who's to say that, like eyesight, it doesn't deteriorate over time?
I've interviewed Nassim Taleb of "Black Swan" fame three times on the NewsHour -- here, there, and back here. Sadly, we never had time for his wonderful monkey example. Here's an early version, from his book "Dynamic Hedging":
"If one puts an infinite number of monkeys in front of (strongly built) typewriters and lets them clap away (without destroying the machinery), there is a certainty that one of them will come out with an exact version of the 'Iliad.' Once that hero among monkeys is found, would any reader invest his life's savings on a bet that the monkey would write the 'Odyssey' next?"
Back in 1983 I published a book with the award-draped Thomas Friedman - not the New York Times columnist but the PBS writer, executive and humor author ("1,000 Unforgettable Senior Moments: Of Which We Could Remember Only 246"; "The Senior Moments Memory Workout"). In that book we quoted Hollywood mogul Samuel Goldwyn as having said "Forecasts are difficult, especially those about the future." Along came the Internet, then the Yale Book of Quotations, and now we know: "It is difficult to predict, especially the future" is the quote, it was attributed to Niels Bohr [!] in Marc Kac's book "Statistics" and may have been "an old Danish proverb."
I am pleased to be able to correct the record. But it's the thought that counts and the thought seems irrefutable: life on earth is stochastic; the future is unknowable. And if you think there MUST be someone who knows better - some Delphic economist out there somewhere -- please read Canadian journalist Dan Gardner's book, "Future Babble." Or John Gaddis' short "Landscape of History." Or both.
Want best guesses? Try markets. They overshoot; they undershoot. But their ability to predict tends to beat "the experts." See our story on prediction. If you want economic predictions in the here-and-now, try InTrade.com.