Bohanon and Horowitz: Exact economic estimates merit your skepticism

In his new book, “Wild Problems: A Guide to the Decisions That Define Us,” economist Russ Roberts writes about tame and wild problems. Tame problems are well-defined and predictable; wild problems are loosely defined and unpredictable.

The moon landing was a tame problem. Though it was difficult, it was a defined and predictable use of science, engineering and rational thought. Wild problems are problems where knowing which path to take and the consequences of choosing the various options are hidden, making rational decision-making difficult.

Roberts writes that choosing what job to take, whom to marry, and whether to have children are wild problems.

Federal Reserve monetary policy is also a series of wild problems.

Princeton economist Alan Blinder’s new book chronicles the fiscal and monetary policy of the last 60 years. Reviews of “A Monetary and Fiscal History of the United States, 1961-2021” reinforce that its main point is how little economists know about the dynamics of macroeconomic adjustment.

Friendly University of California Berkeley economist Brad DeLong summarizes the book: “The big lesson of the past 60 years … is that there is no big lesson” and “that economic policymakers have been playing a never-ending game of Whac-A-Mole.”

Blinder critic and George Mason University economist Arnold Kling argues that the book understates the actual degree of macroeconomic uncertainty, especially since Blinder “continues to treat macro econometrics as a scientific tool.” Kling points out: “Macroeconomic data is not stationary.”

University of Chicago economist John Cochrane argues that, in the final analysis, economic policies are usually made by “Cheshire Cat back-of-the-envelope calculations.”

Federal Reserve chairs from Ben Bernanke to Janet Yellen to Jerome Powell assure us they and their staff will adjust their policies “at the appropriate time” when it is “likely to become appropriate” or “when it will become appropriate.”

They rarely offer much clarity regarding exact timing because they do not know the answers to essential questions, such as: How long will it take for Fed policy to bring us back to the pre-COVID target of 2% inflation? We do not even know if the Fed will sustain its commitment to a 2% inflation rate.

Economists have solid theoretical and empirical reasons to expect certain policies to generate certain results.

However, economics and all social science are not Newtonian physics and never will be.

Economists of all stripes have known this for some time. Social scientists’ enthusiasm to make a better world has often led to this self-deception and proclamations suggesting otherwise.

Be skeptical of exact economic estimates—especially your own.•

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Bohanon and Horowitz are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.

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