Why Economists Disagree

In discussing the economic outlook, the usual approach is to decide first whether the conclusion will be bullish or bearish, and then to pick some recent statistics to support the position you’ve chosen. An experienced forecaster can play this game from either side.

Nonetheless, although forecasting necessarily involves a large amount of judgment, the economic theories on which it should be based can be tested against objective rules of logic and evidence. Short-term forecasting, however, is too often based entirely on historical relationships between a few statistics: increases in real, after-tax incomes are likely to be accompanied by increases in retail sales; increases in wholesale industrial prices are apt to be followed by increases in consumer prices.

About the Author

Alan Reynolds

Alan Reynolds, National Review’s economics editor from 1972 to 1976, is a senior fellow at the Cato Institute and the author of Income and Wealth.

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In discussing the economic outlook, the usual approach is to decide first whether the conclusion will be bullish or bearish, and then to pick some recent statistics to support the position you’ve chosen. An experienced forecaster can play this game from either side.

Nonetheless, although forecasting necessarily involves a large amount of judgment, the economic theories on which it should be based can be tested against objective rules of logic and evidence. Short-term forecasting, however, is too often based entirely on historical relationships between a few statistics: increases in real, after-tax incomes are likely to be accompanied by increases in retail sales; increases in wholesale industrial prices are apt to be followed by increases in consumer prices.