Why Economists Are Wrong

Why are economic predictions so often wrong? Economists use a phrase – ceteris paribus which means all else remaining equal. The various laws of economics are all conditioned by this notion. Of course, in the real world, nothing ever remains the same. Does that mean economics laws are wrong? No – it merely means that the impact of the law may be eclipsed by other changes. Classical economics, for example, teaches that increasing the minimum wage will increase unemployment. But there have been cases where this has not happened. The normal effect of an increased minimum wage was eclipsed by other economic factors such as huge growth in labor demand due to exogenous circumstances. Does this mean that economic laws can be safely ignored? Nope. It does mean that you should have little faith in quantitative predictions and you should be prepared for the times when economic laws don’t seem to hold. But don’t bet against economics – it’s a losers game.

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