Hold up: In defence of macroforecasters
Hold up a second here. My two favourite bloggers have consecutively posted suggesting that macroforecasters are essentially a waste of space (Offsetting Behaviour and Marginal Revolution). As a macroforecaster I am inherently biased, but I think that such forecasters can add value. Let me discuss why.
As I have said in the past, if a forecaster thinks his value comes from the accuracy of predicitons, and sells himself as such, he won’t be adding value. The economic environment is too uncertain, and our forecasting methods too imperfect, to simply rely on forecasting accuracy per see. But given that we can’t provide a perfect version of the future – we must offer something else.
As I have also said in the past, we provide a description of what has happened, a service on the sort of things going on, and a point of view regarding the risks around the economic situation.
I have asked a number of clients what they find useful, and what they want from us, and I generally get told that they like to have information condensed and described in a clear, consistent fashion. Having someone available who is keeping up with the news, and is willing to discuss it at any point has value – and as economists we can also paint risks around the situation, and indicate what “general economic” issues people should keep an eye out for.
The value stems from this service – a service that most private sector macroeconomists are blatantly honest about. Essentially we would never say “this IS going to happen” we would always say “given this set of information, we see this set of potential outcomes, and have this set of probabilities on them – as new information is released we will tell you what this indicates about the general economic situation”. We definitely aren’t there to tell people how to run their business – we are just there to provide information regarding the general environment this business activity is taking place within.
Sure the information may disparately be floating around in places, but we tie it together and use the economic method to interpret it in a clear concise fashion. It is a service, a service people are willing to pay for, and so I would suggest it must have value.
I think both Falkenberg and Cowen are going after the ones selling themselves as having crystal balls, not the folks who are providing specialized reports for specific clients on how the likely macro environment, which everybody knows about, is likely to affect those clients in particular.
Oh, and it’s always fun to rip on macro a bit :>
@Eric Crampton
Agreed on this point – macro is a much easier target than micro 😀
@Matt Nolan
That’s only because macro is witchcraft while micro is actual economics!!!!!
@Paul Walker
Hey hey, witchcraft is a strong term. I’d call macro an applied version of micro, and I’d call macro forecasting an application of the concepts of macro.
@Matt Nolan
But many of the macro forecasters don’t see macro as applied micro, that’s part of the problem.
@Paul Walker
The problem? If they can’t bring it back to economic fundamentals, then they can’t explain things. If they can’t explain things, people won’t keep paying them. I am sure that macroforecasters generally take this into account when thinking about issues.
Macroeconomists have talked about microfoundations for long enough now that everyone involved in the field should take them into account methinks.