And keep in mind, this is true of fields where mistakes are vastly more consequential than in cosmology. We’re only a week or so into July, so you can still hear echos of chatter about the various economic reports that come out in late June– quarterly growth numbers, mid-year financial statements, the monthly unemployment report. These are released, and for a few days suck up all the oxygen in discussion of politics and policy, often driving dramatic calls for change in one direction or another.True. But the way in which people make economic policy takes into account the controversies the academic macroeconomists have created over the years. Yes, the Policy-Pundit complex might be able to prescribe tweaks to public spending or to the money supply based on relatively simple income-expenditure models, but the best policy makers will be sensitive to monetarist or new classical or rational expectations objections to the simpler stuff high-school kids learn. But the forecasting models often get revised (the fancy term is "calibrated") on the basis of new evidence. (I don't want to get into all the logical complications that follow therefrom.) The most telling criticism of the climate-change forecasters is the "hide-the-decline" scandal of a few years ago, in which the facts that did not conform to the theory were discarded. Recalibration involves updating forecasts on the basis of new information.
But here’s the most important thing about those reports: They’re all wrong. Well, nearly all– every now and then, you hit a set of figures that actually hold up, but for the most part, the economic data that are released with a huge splash every month and every quarter are wrong. They’re hastily assembled preliminary numbers, and the next set of numbers will include revisions to the previous several sets. It’s highly flawed provisional data at best, subject to revisions that not infrequently turn out to completely reverse the narrative you might’ve seen imposed on the original numbers.
Somehow, though, the entire Policy-Pundit Complex keeps chugging along. People take this stuff in stride, for the most part, and during periods when we happen to have a functional government, they use these provisional numbers more or less as they’re supposed to be used. which is what has to happen– you can’t wait until you have solid, reliable numbers from an economic perspective, because that takes around a year of revisions and updates, by which time the actual situation has probably changed. What would’ve been an appropriate policy a year ago might be completely wrong by the time the numbers are fully reliable. So if you’re in a position to make economic policy, you work with what you’ve got.
YES, BUT AD-HOC TWEAKS AND PRIORS ALSO MATTER.
Climate forecasting, years in advance, is hazardous. Macroeconomic forecasting, six months in advance, more so. I note, though, that macroeconomic forecasting as undertaken for business or government purposes is a very different project than the kind of research academic macroeconomists engage in.