How do we explain the weak evolution of knowledge in economics? The predictive models seem to us, for us from the outside, random, and appeal for a lot to intuition. During this time, the weather has made leaps and bounds, as well as our level of confidence in its predictions.
Michel Beauchemin, Metis-sur-Mer
Economists are often the object of ridicule when their forecasts are wrong, which often happens, it must be said. But the analogy with the forecasts of meteorologists has its limits.
If economists’ forecasts focused on what will happen tomorrow, the day after tomorrow or in the very short term, like those of meteorologists, they would often be spot on. Similarly, if we ask a meteorologist today what the weather will be like on the National Day, the risks that he is wrong are high, estimates Stephen Gordon, director of the economics department at Laval University, to whom we submitted our reader’s question.
The economist uses the tools of the scientist like logic, mathematics and statistics, but he works with a lot of uncertainties, he explains. He is incapable of predicting shocks like the one caused by the Russian invasion of Ukraine.
Stephen Gordon compares the work of the economist to that of the doctor. “The doctor can tell a patient that he will live longer if he stops smoking, which is true, but this patient can die crushed by a bus the next day”, he illustrates.
Like the doctor, the economist constantly improves his knowledge and learns from his mistakes, according to Stephen Gordon. He gives the example of inflation, which we learned to control with the intervention of the Bank of Canada, after the disastrous experience of the 1970s. “That gave 30 years of very low inflation. »
Economic forecasts are therefore often revised to reflect changing conditions. “We are always more comfortable with conditional statements, like if X happens, we will have an outcome Y.”
Forecasting is only part of the job of economists, the professor points out.
In fact, it is not because economists know what will happen that they make forecasts, but rather because they are asked to do so. And the demand for economic forecasts is great.
Everyone, or almost, wants to know what is likely to happen before making decisions: the investor, the saver, the home buyer who hesitates between a fixed rate and a variable rate, without forgetting the governments.
Policy analysis is an important part of the work of economists, says Stephen Gordon. “We can, for example, assess the impact of a measure intended to eradicate poverty”, he illustrates.
With the same basic data, economists sometimes come to different conclusions. “There are always subjective elements, which can be interpreted in different ways, even if we agree on the theory. »
It may be added that the source of the forecasts is important. “When you’re in the ‘business’ of attracting attention, you take the means to do so,” he says.
Doomsday scenarios, as we know, are usually the ones that get the most notice.
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