Quote of the Day: The Scarcest Ability Among Economist is Good Judgment

I am thinking that you may well share my view, which I have held for a very long time, that the scarcest ability among economists (and others who purport to have expertise about economic matters) is good judgment. Many economists are obviously very smart, in the sense that they are good at math and can wheel and deal with pretty complex mathematical models and econometric exercises. But this sort of technical ability may — and sad to say, usually does — have little or nothing to do with actually understanding how the world works. What I call good judgment about economic reality seems to depend much more heavily on a combination of (1) mastery of basic applied price theory, the theory of how changes in incentives and relative costs affect actions taken at the margin(s); (2) substantial knowledge of economic history and the institutional context of economic actions; and (3) a level-headedness that keeps the economist from falling in love with what is merely possible (usually in a fairly other-worldly model) and losing sight of what is likely. In other words, most economists and other purported economic experts, notwithstanding their cleverness and mathematical prowess, have no “feel” for how the economy works at all. It’s as if they never see past the trees of technicalities and possibilities to the forest of real economic actions and interactions, not to mention having an appreciation of the relative magnitudes of various factors. This aspect of economics, as the great majority of economists practice the craft, has always put me off, ever since I was an undergraduate; and, if anything, it puts me off even more now, after I have spent half a century trying to do economics right.

(bold mine)

This is from Austrian economist Robert Higgs’ who contributes to what makes for a good economist as published at the Café Hayek (hat tip Mises Blog).

As I have been saying, statistical analysis doesn’t make for economic analysis.