THE SOURCE: “Macroeconomics After the Crisis: Time to Deal With the Pretense-of-Knowledge Syndrome” by Ricardo J. Caballero, NBER Working Papers, Oct. 2010.
Since the financial panic in the fall of 2008, many economists have embarked on some soul-searching: How did we miss this? But the failure to predict the largest economic crisis since the Great Depression doesn’t bother MIT economist Ricardo J. Caballero. Major crises are “essentially unpredictable,” he says. The big problem is not what economists don’t know, but that they think they know more than they do. They aren’t asking the right question: What policy advice can economists usefully give when so little is known?