Monday, February 11, 2019

The Warnings of Professor von Mises Carried No Weight in the European Central Bank (ECB) Council: "There Is Not, and There Cannot Be, such a Thing as Quantitative Economics!"

The Deutsche Bundesbank, now under the presidency of a renowned econometrics professor (Axel Weber), seemed to be putting more emphasis than ever before on the output of the models. Otmar Issing, the eminence grise in the ECB at the start, and to a moderate degree sceptical of econometrics according to his autobiographic account (see Issing, 2008), had retired in autumn 2006.

The warnings of Professor von Mises (1971) carried no weight in the ECB Council:
There is not, and there cannot be, such a thing as quantitative economics. The usual method employed in business forecasts is statistical and thereby retrospective. They depict trends that prevailed in the past and are familiar to everybody. They in no way answer the questions that all people, and especially businessmen, are asking. People know that trends can change; they are afraid they will change; and they would like to know when the change will occur. But the statistician knows only what everybody knows, namely, that they have not changed!
The data which was being fed into the econometrics model on which the ECB prided itself, supplemented by the ECB’s analysis of the ‘second pillar’ of its monetary framework, did not produce any hint of serious recession risk ahead. Instead it was the amber or even red inflation light which was blinking! 

--Brendan Brown, Euro Crash: The Implications of Monetary Failure in Europe (Houndmills, UK: Palgrave Macmillan, 2010), 95-96.


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