From the two-decimal-place worlds of economics and finance we know that forecasting is a relatively futile exercise. As pointed out by John Greenwald in The Forecasters Flunk The poor forecasting ability prompted Martin Feldstein, formerly chairman of the President's Council of Economic Advisers to conclude: "One of the great mistakes of the past 30 years of economic policy has been an excessive belief in the ability to forecast." In this vein Treasury Secretary Donald Regan felt that forecasts were so vague and unclear that, "If you believe them, then you also believe in the tooth fairy." (Time, August 27, 1984) “The economists missed the onset of the 1981-82 recession, the worst downturn since the Great Depression. Then, once the slump arrived, they misjudged both its length and its severity.”

Critics of "orthodox", "mainstream" or "neoclassical" economics have never been in short supply. They have announced the death of neoclassical economics again and again, starting in 1900 with Thorstein Veblen. However, since the mid-1970s, criticism of the foundations and casting of modern economic models – on which forecasting is premised – has grown in volume, spurred on by the poor forecasting record of economists. Amongst this choir is the loud, ultra-clear and witty voice of David Colander.

For more than 25 years, Colander has crusaded against different versions of mainstream economics. His first collection of broadsides was humorously titled Why Aren't Economists as Important as Garbagemen? Essays on the State of Economics (1991). The key premise of that text was that whilst garbage collectors perform a useful function in society when they get rid of the trash, economists perform no useful functions. To boot, the garbage collectors are likely to produce more reliable economic forecasts.

The reasons for poor forecasting are manifold. By way of example, as Colander argued, the macroeconomic texts of the 1970s and 1980s were replete with preposterous half-thought-out models of the economy (the aggregate demand and aggregate supply model being the chief violator). As a result, Colander went on to argue in his 1991 book that he was against "economic research [that] has little or no value for society" and economists who have stopped looking at "real issues" and play "mind games" with other economists.

But it’s more than just poor models producing poor forecasts. Economists offer other explanations as to why their fellow dismal scientists collectively make such lousy forecasters. Nouriel Roubini, professor of economics at the Stern School of Business at New York University, believes that there are institutional reasons. Many forecasters surveyed by the Philadelphia Fed work for Wall Street investment banks or asset management companies, which tend to argue that it is always a good time to invest. There are powerful incentives and pressures not to be unduly bearish about the economy. “When your firm is bullish on everything else, and is peddling all kinds of stocks and bonds, nobody will be foolish enough to go the other way,” he said. Of course, Mr. Roubini is perfectly willing to go the other way. Last summer, he boldly predicted a recession for the first half of 2007. Sadly (for the profession), he was wrong.

Other elements play a role too, such as behavioural factors, an example of which is the gambler’s fallacy in which economists can’t see the economy quitting as it’s on a winning streak. Lakshman Achuthan, managing director at the Economic Cycle Research Institute, says that most economists are simply using the wrong tools: “Generally speaking, professional forecasters tend to extrapolate from existing trends, albeit in a very sophisticated way.” From here the diagnosis goes from harsh to critical. Christina Romer, professor of economics at the University of California, Berkeley, says economists can’t predict recessions for the same reason stock market analysts can’t accurately predict market crashes. “Both kinds of events, by their nature, are not predictable events,” she said. Almost all the postwar recessions were preceded by a shock, like a spike in short-term interest rates, or a sharp rise in oil prices. Christina Romer concludes: “It’s impossible to see the shocks coming.”

But economists continue to behave as if the models work, and that the future looks like the past. To use their models, economists crank in the latest government statistics and, Voila!, out comes the future. But the models aren’t reliable, the future doesn’t look like the past and people will not act in the same way tomorrow as they did yesterday.