Monday, Sep 26, 2022
Outlook.com
opinion

Can You See The Fog?

Links between financial crises and recessions are unalterably vague

Can You See The Fog?
Illustration by Sorit
Can You See The Fog?
outlookindia.com
-0001-11-30T00:00:00+05:53

The fact that this financial crisis came upon us with so little forewarning has led to a lot of criticism of economics as a discipline. Some of the criticism is valid, but not all. First, it needs to be appreciated that in economics a prediction itself can alter the object of the prediction. Hence, for certain kinds of economic phenomena, forecasting may be a logical impossibility. Consider predicting a fall in stock prices one month in advance. If anyone can actually master the art of doing this, then, as soon as the person makes this forecast, people will sell their shares and prices will come down immediately. So no one can have a reputation for predicting share price declines well in advance.

Second, in these troubling times, the demand is for economists who do not temporise but make clear statements, who do not waver about the causes of the crisis but are unequivocal. This, however, is the wrong lesson.

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