Towards Economic Humility

Gregory Mankiw has a long wonky article on the stimulus:

The question for economists now is whether the administration's assumptions, and the model based on them, were correct. After all, if we could be sure their model was right, we would know what to conclude when their stimulus plan was followed by 10% unemployment: The patient was sicker than they thought, and unemployment would surely have been higher still if not for the stimulus. (Indeed, since Obama's advisors do believe their model was right, this is the conclusion they have reached.)

The trouble is, we have no way of knowing for sure if the model was in fact correct. To react to a model's failure to predict events accurately by insisting that the model was nonetheless right as Obama's economic advisors have done is hardly the most obvious course. Careful economists should instead respond with humility. When their predictions fail as they often do they should not dig in their heels, but should instead be willing to go back to their starting assumptions and question their validity.

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