There is currently an interesting conversation going on regarding empirical economics and predicting the future. This conversation was sparked from Russ Robert's recent essay titled 'What do Economists know'. In this essay, Roberts is skeptical of econometric analysis.
In the blog post Roberts says,
One response to the questions I am raising is that we have new techniques that solve a lot of the problems I’m talking about. These new empirical techniques have allowed us to run quasi-experiments that while not perfect, eliminate many of the problems of complexity and multi-causal reality. I remain a skeptic. But maybe the champions of the new empirical techniques will convince the skeptics. We’ll see... We are notoriously unreliable at the things the world really cares about and asks of our profession... What I am arguing here is that the combination of economics with statistics in a complex world promises a lot more than it delivers. We economists should be more humble and honest about the reliability and precision of statistical analysis.John Cochrane praises Roberts' blog post. Cochrane says,
Russ explains with great clarity, just how uncertain [economic] estimates are... Economic history teaches us humility: No economist in 1900 could have figured out what farmers, horse-shoers, ice deliverers, street-sweepers, and so forth would do when those jobs disappeared. The people involved did. Knowledge of our own ignorance is useful.There has also been some pushback to the post. Adam Ozimek says,
I think Russ is most correct in arguing for more humility from economists. But I would add that this is a general problem not particular to economists, and I would conjecture that on average those who do not attempt to tie down their beliefs with empirical research suffer from an even greater humility gap than those who do. Within economics, failure to regularly cite empirical results, or lack of familiarity with them, seems pretty strongly correlated with lack of humility and not vice versa.Noah Smith also provides a critique on Roberts' post,
The alternative to empiricism in economics is not agnostic humility, but intuitionism - the idea that we can know about the world by thinking about how it works, and that exposure to evidence will only pollute the truths that we divine from our own minds. And that's something I think economists need to avoid.I agree the most with Roberts and Cochrane. Although I believe econometrics can expand our knowledge, I don't think it is the solution to everything. For example, I believe one of the main goals of macroeconomics is to predict future economic phenomena. Inevitably, predictions far into the future (such as 10 or 30 years) require knowledge about new technologies and future political institutions. This is why macroeconomics is so difficult. I doubt modern econometric analysis and mathematical models can predict future technologies and future political institutions.
I'm not saying that macroeconomics should abandon the goal of becoming an objective science. I believe that there are macroeconomic consistencies that can be supported with evidence. But predicting what the actual economy will look like in 20 years is outside the realm of modern econometrics. Predicting things like this relies on a different set of knowledge and ability.