Tuesday, July 28, 2009

A Hayekian Joke from Bernanke?

Nobel Prize winning economist Friedrich Hayek, throughout his career, pointed out the differences in methodologies and capabilities of various sciences, warning, for example, of the danger in thinking that the methodolgy of physics could be applied to economics.

Thus, it is very interesting to see Bernanke throw out this joke during his "Love the Fed" World Tour:
Economic forecasting makes weather forecasting look like physics.
This could be shrugged off as just an off the cuff remark, but he has said something similar in more detail back in May:
Like weather forecasters, economic forecasters must deal with a system that is extraordinarily complex, that is subject to random shocks, and about which our data and understanding will always be imperfect. In some ways, predicting the economy is even more difficult than forecasting the weather, because an economy is not made up of molecules whose behavior is subject to the laws of physics, but rather of human beings who are themselves thinking about the future and whose behavior may be influenced by the forecasts that they or others make.
Bernanke talks about "random shocks" in this quote, so he may not get that the business cycle is caused by the misallocation of resources caused by Fed money printing, but, it appears, he is thinking about the problem of the methodology of economics and how it differs from other sciences, in a Hayekian kind of way.

1 comment:

  1. Is this not more evidence that he may have has undergone some sort of Damscian style conversion? You have written at length about how he is suddenly cutting back money supply growth. That in itself suggests he may be alert to the errors of his previous irresponsibility in monetray matters.