Mark Thoma, a professor of the dark art/science who teaches economics at the University of Oregon, neatly summarizes what everyone knows and few discuss: you can persuasively make a case for just about anything in the dismal science, but proving it is something else. Meantime, it’s all about organizing facts.
Or as Thoma writes:
Much of the uncertainty in economics derives from our inability to do laboratory experiments, and that includes uncertainty about which model best describes the macroeconmy.
When the present crisis is finally over, those who advocated fiscal policy, those who advocated monetary policy, and those who advocated no policy at all will all say “I told you so” based upon their reading of the evidence.
One quick example comes in the debate about whether Milton Friedman–who literally wrote the book (co-authored, actually) on monetary policy–would support or reject current calls for more quantitative easing at this point. Yes, of course, argues Scott Sumner; no, absolutely not, counters John Taylor.
Hey, what’s going on here? Chalk it up to the Paradox of Economics. Or as Thoma concludes: “…for now we are stuck arguing about which model is best without the means to turn to the data and clearly distinguish one from the other.” And sometimes it’s about arguing over the “right” interpretation of a given model. Milton Friedman lived to a ripe old age, and left a healthy paper trail. But apparently it wasn’t enough to send an unambigious message about how he thinks.
The possibility of making mistakes is, uh, slightly higher than it would be if we’re writing rules for designing aircraft or cleaning the streets.
That leaves us with the question: What chance do 12 people have for pulling the right strings with the right force at the right time? We’ll know soon enough.