Can economists predict the future?

Joe Kent Blog, Spontaneous Order, Uncategorized

I can make a prediction that will almost definitely come true: On July 28th, 2061, a bright comet will appear in the night sky.

Of course, this is not my prediction, but Edmond Halley’s — which is where the name Halley’s comet comes from.

Unfortunately, Halley died before he could view Halley’s comet for himself, but he is proven correct every 76 years.

In a similar way, the economist Ludwig von Mises predicted the collapse of socialism. He also died before he could view the collapse of the socialist economies of his time, but he has been proven correct again and again.

How did Mises and Halley know such bold things about the future? And how can we use their insight to make our own predictions about the future?

The answer has less to do with mathematics, and more to do with simple logic.

For Halley, he deduced that a comet going around the sun would be seen again in the future, and he was correct.

But for Mises, the problem was a bit more complex, because there was no bright object in the sky for him to look at.

Mises understood the many problems with socialism, and the inevitable collapse of such a system. He wrote about his findings in, “Economic Calculation in the Socialist Commonwealth“.

In this landmark essay, Mises proved that socialism could not work because the price system was broken. In a purely socialist system, prices are made up by bureaucrats, and this causes all kinds of chaos. Without real prices, no one has any clue how much anything really costs. When this happens, the entire system collapses.

Mises and Halley predicted the future, but in reality, they were explaining a phenomenon, like a law of nature.

Just like Albert Einstein predicted the existence of black holes, or Charles Darwin predicted the existence of a mysterious moth in Madagascar — they did not have a crystal ball, but they only used simple deductive logic to explain the natural world.

So, can economists predict the future?

Well, many economists pretend they can predict the future! In fact, today, economists are often seen as wizards or magicians who wave their mystical calculator and show whether the market will go up or down by three or four points next month. But this kind of prediction is impossible.

However, there are some things that economists can predict — especially when it involves simple deductive thought about the way the world works.

For example, if supply is high and demand is low, it’s easy to predict that the price will probably go down.

Similarly, if the minimum wage is raised to an extremely high price, it’s easy to predict that many people will probably become unemployed.

So economists can predict some things that are based on simple deductive thought. But beware of any economist who gives specific times, dates, or prices in his predictions. That is one thing that economists can never do.