Economic Foresight for an Age of Uncertainty. (Books in Brief)
Jennings, Lane, The Futurist
Understanding Economic Forecasts, edited by David F. Hendry and Neil R. Ericsson. MIT Press. 2001. 207 pages. $25.95. (Order online from www.wfs.org/specials.htm.)
Too bad economics isn't more like physics. If it were, we could rely on fixed laws of human behavior to accurately measure and predict why people spend or save, buy or sell, in different situations. For centuries, theorists and historians have attempted to predict future economic conditions, but with only limited success, because the economy is both complex and unstable: It is constantly changing in unexpected ways.
The 10 essays in Understanding Economic Forecasts squarely face these limitations and explore methods by which it may be possible to produce valuable economic forecasts that allow for abrupt and startling changes in world conditions, and also constructively compare the alternative forecasts produced by various economic models.
Most of the book is highly technical, using examples drawn from economic policies and institutions in the United Kingdom. But two chapters stand out as especially accessible and useful to general-interest readers everywhere.
In "How Economists Forecast," coeditor David F. Hendry, a professor of economics at Oxford University, concisely and wittily examines forecasting methods ranging from sophisticated econometric systems to plain guesswork. He recommends the adoption of "robust" modeling techniques that allow economists to recalibrate their forecasts quickly following a sudden unforeseen event. This allows the forecast to avoid compounding inaccuracies over time. …