By Roger Martin
The opinions expressed are his own.
This is part one of this essay. Read part two here.
As the economy teeters and the capital markets gyrate, I can’t get out of my mind the evening of May 19, 2009. We were near the stock market nadir and fears were cresting that we were heading straight into the next Great Depression. I was invited to a dinner along with half a dozen tables of guests to hear a very prominent macroeconomist opine on the state of the economy and the path to recovery.
The economist held forth with a detailed, analytical account of what had caused the economic meltdown in the second half of 2008 and the path that he predicted recovery would take. I was struck by how scientific he was, spewing myriad statistics, employing technical terms by the boatload, and praising his econometric model. It was ‘very sophisticated’. Given the nods and encouraged looks in the room, it seemed as though he had provided great comfort to the guests; they could go to bed confident that thanks to his science, they could trust that this man knew where we were headed.
I wasn’t quite so confident. Being the curious sort, before coming to dinner I had checked his forecast from a year earlier, mere months before the crash. His spring 2008 forecast for the second half of 2008 was for modest positive economic growth for America. This was not unusual; no credible economist predicted anything less rosy for the back half of 2008, although many now claim that they did. I don’t blame or ridicule him for being cautiously optimistic mere months before the worst economic downturn in 80 years. Economic forecasting is fraught with peril.
For me, the striking thing about the evening was that nothing changed about his models after they were shown to be hopelessly wide of the mark. He just loaded up the equations, dumped in the latest numbers and started crunching away. I asked him whether he had altered his models in the wake of his dreadful forecast of 2008; stunningly, he hadn’t thought of the question.
It struck me then and still does that this dinner is illustrative of a fundamental blind spot in modern science. It has ventured far afield of its natural limits and is both creating problems and inhibiting progress.