Economics, seismology and meteorology

Economics and seismology have some similarities. Both subjects involve the study of complex systems which are stable for much of the time, but which are capable of causing great damage when they become unstable. Both subjects are in their infancy – neither has the capability to prevent catastrophic instabilities and neither has the capability to predict such instabilities.

So why do we seem to have a problem with economists but not seismologists.

Meteorology also has major limitations. Again, it involves a complex system which is stable for much of the time, but which can cause massive destruction when it becomes unstable. Weather forecasters can make accurate predictions for a few days ahead but are less good over longer periods. They can predict major events such as hurricanes but can’t predict their precise paths. They can’t prevent hurricanes from occurring and they can’t change their paths when they represent a major threat to life and property.

So why do we seem to have a problem with economists but not meteorologists.

One answer is that seismology and meteorology study complex natural systems whereas the economy is a complex system with a man-made design. Our expectations of what seismologists and meteorologists can achieve are limited by our shared understanding that we are merely trying protect ourselves from forces which are more powerful than us. Our expectation of economists is that they should help us design and control the economy, rather than just try to understand it and forecast major instabilities. We expect economists to be able to run before they can walk.

A second answer relates to the frequency of instabilities. Earthquakes and hurricanes occur many times a year, whereas major economic depressions may happen only once or twice in each lifetime. We expect earthquakes and hurricanes, but are surprised when the economy becomes unstable.

A third answer follows on from the first two. Our common understanding of the limitations of seismology means that we can take collective actions to protect ourselves against earthquakes:

• Design buildings to withstand the shocks of a major earthquake
• Design walls to hold back related tsunamis
• Design early warning systems to flash messages about impending earthquakes and tsunamis into television and radio broadcasts
• Educate the general population on how to protect themselves during an earthquake
• Design and implement disaster recovery plans.

Our common understanding of the limitations of meteorology also means that we can use daily weather forecasts in a reliable way, and protect ourselves from extreme events.

No such common understanding seems to exist regarding what reliable services we can expect from economists, or whether the rest of us would find such services useful. Imagine that meteorologists always predicted that tomorrow’s weather would be very similar to today’s weather, and imagine that many of them said that their models showed that hurricanes could not occur. They would be correct much of the time but that service would not be useful. This is compounded by the apparent inability of the economics profession to speak with a single voice on anything. As a result, when a major economic crisis occurs, we are each left to our own devices to determine the appropriate course of action, and that action tends to involve panic.

A final answer relates to politics. We ask our politicians, and their economic advisers, to design an optimal economy for us. An honest politician would point out the limitations of our current abilities to do this. Of course, no-one would vote for a politician, or listen to an economic adviser, who expressed this type of humility. We are nevertheless surprised when successive sets of politicians and economists fail to live up to their unrealistic promises.

We have only ourselves to blame.