I'm thrilled to have my third cover article for The Freeman. In this piece I discuss the severe problems with economic modeling, which guides more economic policy - fiscal and monetary - than you might imagine. Why can't economists find consensus in their forecasts? My hypothesis is they rely on models that seek to describe complex systems -- systems that cannot be limned with even the most sophisticated maths.
Here's a sliver:
Likewise, we have to explain that a scientist’s model, while useful in limited circumstances, is little better than a crystal ball for predicting big phenomena like markets and climate. It is an offshoot of what F. A. Hayek called the “pretence of knowledge.” In other words, modeling is a form of scientism, which is “decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed.” A model is thus a cognitive shortcut for both the wonk and the journalist, the latter of whom wants to peg his story to something authoritative the wonk has to provide. At the receiving end of this wonk-writer alliance are the rest of us—with little besides common sense as a shield. And I don’t mean this as populism. It is rather a defense against scientism launched from the turf of Austrian economics.
I may piss a lot of economists off with this piece. But there are very strong a priori reasons to reject this type of economics. The Austrian insight is potent and powerful. Professional academics in the thrall of the machine metaphor would do well to pay attention to the Mengerian school who grasp bionomics.