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By John Authers
Published: March 11 2011 22:57 | Last updated: March 11 2011 22:57
The most important words in economics are also the words that doom it to failure; ceteris paribus, or "all other things equal". Assume all else is equal and you can build a decent model. Physicists and chemists do this with controlled experiments. Economists cannot.
Their work is vitiated by human errors and failings. And as is painfully clear today, economics is also vulnerable to the forces of nature. No economic model can predict the worst earthquake in more than a century. In the event, markets must adjust, in real time, burdened by confusion and imperfect information "“ the gyrations of the yen (see chart) are an example. Economists can still build models but they are inevitably flawed.
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