Economic Forecasting and Science
[An abridgement, reprinted from: Michigan
Quarterly Review, October 1965]
If prediction is the ultimate aim of all science, then we forecasters
ought to award ourselves the palm for accomplishment, bravery, or
rashness. We are the end-product of Darwinian evolution and the payoff
for all scientific study of economics. Around the country, students
are grinding out doctoral theses by the use of history, statistics,
and theory -- merely to enable us to reduce the error in our next
year's forecast of GNP from $10 billion down to $9 billin.
Actually, though, I am not sure that the ultimate end of science is
prediction -- at least in the sense of unconditional prediction about
what is likely to happen at a specified future date. ...Some of our
best economists seem to be fairly poor forecasters of the future. ...
A good scientists should be good at some kind of prediction. But it
need not be flat prediction about future events. ...If he is a master
scientist, his hunches about experiments never yet performed may be
very good ones.
Similarly, a good economist has good judgment about economic reality.
To have good judgment means you are able to make good judgements --
good predictions about what will happen under certain specified
conditions. This is different from having a model that is pretty good
at doing mechanical extrapolation of this year's trends of GNP to
arrive at respectable guesses of next year's GNP. ...
This means that the master economist must peice together, from all
the experience he has ever had, hunches relevant to the question at
...The essence of science is mastering the art of filtering out the
obsolete patterns of the past and filtering in the patterns of
As an economic scientist, I take economic forecasting with deadly
seriousness. I hate to be far wrong. Every residual is a wound on my
body. ...The reason is not vanity --because forecasting serves a
purpose: each dollar of error costs something in terms of corporate or
national policy; and if the "loss function" or "social
welfare function" is a smooth one in the neighborhood of its
optimum, it will be the square of the error of forecast that gives a
rough measure of local error.
"The Puzzling Failure of Ecoomics" has a lead article
inside that says, "I don't care who writes a nation's laws
... if I can write its economics." Paul Samuelson, The
Economist, 25 August 1997]