Why Economic Models Are Always Wrong

mayberry42 writes "Did you ever wonder how and why professional economists often seem to get it wrong in terms of predicting consequences or policies accurately (or even at all)? Or how very few even saw the current economic collapse? This article provides an interesting, if obvious, reason as to why economic models are effectively always wrong."

Comments

Re:Obvious really

[trout007]

I am a mechanical engineer and I am asked to predict future events all the time. Things like what will the maximum load on a structure be, or will this part fail, ect. To someone untrained it may look like magic but there is science behind it.

As for economics you have to find the right version. I think the Austrain School provides the best insight. I think where you are getting confused is that peoples values are constantly changing and that is difficult to predict. Will they like the iPod or not. Those may be impossible to determine.

But there are many things that are perfectly understandable. When lots of money is created and put into the economy you know a bubble is going to occur. You cannot predict with certainty what sector this bubble will form but once it starts forming it is easy to see. Also if you raise minimum wage you know unemployment is going to increase. You may not know what exact people will be effected but you know the oval effect. When you make interest rates artificially low for certain things like mortgages and tuition you know malinvestment will flow into those industries.