Economists vs. Forecasters

The great Dr. Walter Block has responded to an email concerning a forecast, and published the exchange at LRC.

I reprint the short exchange in its entirety here:

The exchange is titled by Dr. Block, "Economics and Entrepreneurship Are Not the Same"

From: Odessa Munroe

Sent: Sunday, July 19, 2020 3:00 PM

To: Walter Block <wblock@loyno.edu>; Victor Pross <artpross@hotmail.com>

Subject: Hello from Odessa

HI Walter!

Since you are a famous economist and know Canada… With the money change coming up in the US and all of the drama there ….

Am I correct that I should get out of the dollar and continue to buy gold?

Any quick thoughts? I want to protect my family…

Odessa

Dear Odessa:

Thanks for your kind words.

Economists predict the future to demonstrate we have a sense of humor. If we knew which investments were best, we’d be rich. We’re not rich. We’re more into Monday morning quarterbacking.

Sorry, not to be able to help you with this entrepreneurial, not economic, question.

 Best regards,

Walter

I fully agree that economists, qua economists, are not entrepreneurs. 

However, I do want to expand upon Dr. Block's important observation.

First, there is a difference between forecasting and entrepreneurship. Forecasting is essential to entrepreneurship but a forecaster need not be an entrepreneur if he simply makes a forecast and does not act in an entrepreneurial fashion on the forecast he has made.

That is, predicting gold will go up without investing in gold or otherwise profiting from the forecast is not entrepreneurship but it is a forecast.

As Warren Buffett puts it, "Predicting rain doesn't count building an ark does."

So we can also say that economists are not forecasters, even when they are not entrepreneurs.

Second, while an economist, in his capacity as an economist is not a forecaster, knowledge of economics can help the forecaster.

If a forecaster understands Austrian business cycle theory, this will help him stay alert to boom and bust business cycles caused by central bank activities. If a forecaster understands how rent controls can result in deterioration in real estate properties because of oppressive controls, he can use that understanding in his real estate value calculations. If a forecaster understands that minimum wage laws can cause unemployment, he can use that understanding to calculate unemployment levels.

The forecaster is different than the economist but the economist can help the forecaster.

-RW