Why do people still pay attention to a profession that has been so wrong so often?
Robert J. Shiller, Professor of Economics at Yale
Indeed, economists failed to forecast most of the major crises
in the last century, including the severe 1920-21 slump, the 1980-82
back-to-back recessions, and the worst of them all, the Great Depression
after the 1929 stock-market crash.
...
A cynic might ask, "If economists are so smart, why aren't they
the richest people around?" The answer is simple: Most economic ideas
are public goods that cannot be patented or otherwise owned by their
inventors. Just because most economists are not rich does not mean
that they have not made many people richer.
I guess I must be a cynic because I disagree with the Nobel laureate. If economists understood economics they could become rich without owning or patenting anything, by for example just betting on which way interest rates will go.
There's an old Bob Dylan song that goes "there's no success like failure," and it's a lesson that's been central to the rise of the economics profession. Each economic calamity since the Great Depression -- stagflation in the 1970s, the double-dip recession in the late 1970s and early 1980s, the 1991 downturn -- has served to boost the stock of economists. The long Clinton boom that pushed unemployment down to 3.8 percent was good news for nearly all Americans, except economists, who saw their prominence plummet. Fortunately, the last financial crisis fixed that.
It takes a physicist, Mark Buchanan, to analyze what is wrong with economics:
Academic economists, they say, use the term "explanation" in a way
that other scientists never would. Instead of developing realistic
and testable theories like those in biology or physics, they often
aim only to develop "theoretical cases" -- imaginary mathematical
worlds with their own rules of cause and effect.
...
And yet, Gilboa and his colleagues suggest that most economists
don't see checking the external validity of models as part of their
job. Rather, they like to make whatever assumptions are needed to
prove their results, get published in a journal, and then "leave
the similarity judgements to practitioners." If their results
are inappropriately applied in the real world, that's not their
problem. In no way does it threaten the reputation of the theories
they have developed.
As explained in The Economist the only reliable method to evaluate predictions is to conduct a Philip Tetlock forecasting tournament.
Addendum 04/19/2015: Science's Toughest Test, & Higgs Particle vs Piketty
Good science allows only shakeable faiths. Its toughest test comes
when new evidence meets old certainties. By that test some economics
seems more art (or math masked religion) than science.
...
One aspect of Tyler Cowen's intertribal Piketty review
illustrates. He calls Piketty's redistributive recommendations
"more ideological than analytic," then complains about
"distorting effects" of "intense government control," asserting
that growing the "economy would do more than wealth redistribution
to combat...inequality." But recent IMF research finds "no observed
tradeoff between redistributive...institutions and...growth." Instead
"inequality reduces growth". Are Cowen's ideological priors
encouraging him to discount contrary evidence?