"A Question for the Economists," Weekly Standard, 13 April 2009.
One group of those involved in the present financial crisis has so far escaped notice–the economists. They are masters in the science of prediction, but as a group, if not to a man, they failed to predict a crisis that has wiped out nearly half the wealth invested in the stock market and elsewhere (measured of course from the peak). The economists did no better than their unscientific rivals, the stock pickers, who are in the business of prediction.
Perhaps we need a second look not merely at the existing models by which economists predict but at the very idea of prediction as the goal of social science. Economists had been in the habit of asserting that they had come a long way since the Depression, that such an event could not happen again. Yet people are now actually speaking of another Depression as possible. Maybe we know how to avoid the Depression we had, but what about a new one with a new character we do not recognize? Isn’t our present crisis new? Isn’t every crisis new–since surprise is the essence of crisis? If prediction were reliable, we would be prepared for every chance, and our lives would be crisis-free and much duller.
We can approach the idea of prediction by asking the economists a question they do not usually have to answer, which is this: In the present crisis is it better for citizens to spend or save? Or more generally, how do you economists recommend that we live?
To spend seems the civic thing to do–that’s what the various proposals of stimulus are for–but to save seems more prudent, since most people will likely be receiving less income in the near future, perhaps considerably less. Which is better?