John Cochrane questions the accuracy of Keynesian economics by showing the failure of the Fed’s and CBO’s Keynesian models to accurately forecast the slow recovery. He ends a blog post by asking, “…the question of the day really should be why we have this slump -- which, let us be honest, no serious forecaster expected.” I take exception. Here are excerpts from my book, Unintended Consequences: On the structural nature of the recession: “Investors and consumers have ... Read More
Shouldn’t valid economic theories produce accurate forecasts?
In a series of blog posts, John Cochrane presents two graphs showing how both the Fed and CBO have continued to make significant mistakes in forecasting large Keynesian rebounds, and have slowly revised their forecasts downward. The downward forecasting is consistent with a point I made on March 3rd, after the CBO’s Budget and Economic Outlook was published. If Keynesian economics properly modeled the current circumstances, it would make accurate near-term forecasts of ... Read More
