Jeff Harding nails the problem with mainstream economics:
Econometricians believe that if you look at history (data) you can come up with truths about what happened historically and, based on that history, what will happen in the future.The only problem is that philosophy doesn’t work very well. How many econometricians, or any contemporary economist for that matter, saw the crash? You know the answer to that one.
Why doesn’t their philosophy work very well?
Because the “economy” is not some amorphous aggregate that can be measured with any precision. It is instead a word to describe the decisions made by millions of individuals every day. I am not an aggregate; I am an individual. You just can’t fathom the reasons for all these decisions as if human beings were molecules of matter subject to the rules of physics. There is just too much data, even with supercomputers with yottabits of storage (1024). So, when econometricians select certain historical data, they have no clue as to whether or not they’ve got the right data. They are guessing.
If you can understand that, then you are way ahead of most economist who believe in things like the classic Keynesian formula that never works.
The Austrian School economists figured this out. They pioneered breakthroughs in epistemology (the science of how you know what you know) of the social sciences. Men like Ludwig von Mises and Friedrich von Hayek developed these ideas from the ground breaking work of their Austrian economist predecessors such as Menger, Böhm-Bawerk, and others. They were intellectual giants. The Einsteins of economic theory, if you will. Yes, their ideas are that important.
Read the whole thing.