This point may have been made here before, but a colleague of mine who teaches corporate finance reminded me recently of how the collapse of the housing market bubble so discredits the dark art of “econometric prediction” in the economics profession. The obvious rhetorical question is: Why didn’t the Greenspan Fed and its veritable army of thousands of Ph.D. econometricians predict the existence and bursting of the housing bubble?
Austrian School econonists have used statistics and statistical theory, but have eschewed econometric prediction. And they are the only ones to have used their business cycle theory to explain that a bubble was in fact occurring, and that it would inevitably burst (although no one attempted to predict WHEN).
Fed economists and Fed worshippers in the economics profession are doing their best to follow Greenspan’s lead and blame the mess they created on anything but their own stupid policies, but still, the magical, mystical art of econometric “prediction” will be discredited forever in the eyes of many.
7:34 am on November 9, 2008
