Fact A: On 10 December each year, the King of Sweden presents the Nobel
Memorial Prize in Economic Science to some paid-up member in good standing of
the international economics community.

Fact B: Every government in the world employs an army of economic advisers to
counsel it on the plotting of a safe course through the battlefield of stock
market crashes, budget deficits, trade imbalances, stagflation, currency
revaluations and the myriad other landmines and pitfalls of modern economic
life. Yet by common consent, prospects have never been bleaker for a stable and
secure global economic order.

This contradictory pair cries out for an explanation. Fact A strongly
suggests that economics is a science, subject to the same kinds of laws that
govern those other science stars—physics, chemistry and
medicine—comprising the Nobel constellation. The term “science” is part of
the official title of the award. It is a sub-fact worthy of note that more than
half the winners of the Nobel accolade have been cited for significant
contributions towards the elucidation of theoretical, and especially
mathematical, principles (read: laws) governing economic behaviour.

Fact B, on the other hand, suggests just the opposite: our understanding of
the workings of actual economic processes is so weak and primitive that there
are no principles to guide even the simplest of decisions. Interest rates: raise
or reduce? Money supply: expand or contract? Stock investment: buy or sell?

Reder’s book is devoted to an account of how Facts A and B are seemingly able
to exist side by side in a world of increasingly complicated and arcane economic
processes. It explores the kinds of law-like mechanisms that economists have
invented to account for the behaviour of governments and individuals when hard
cash is on the line.

Of equal interest is the view Reder takes on the human role in the creation
and destruction of economic paradigms. Reder argues that this field has
developed in response to two very different kinds of pressures. The first is
society’s demand that expert advice be based on “scientific” results and
methods; the second is that economists themselves would like to see their own
profession as a science.

“To put it mildly, outside the circle of professional economists, statements
implying that economics is a science,” Reder says, “do not meet with universal
acceptance. Varying with the audience, such statements are met with comments
alluding to failed predictions, mathematical models that do not facilitate
useful results, lack of consensus among ‘certified’ economists as to the
probable effects of contemplated actions by public authorities, and so on.
Generous observers will sometimes suggest that the shortcomings of economics
reflect the relative youth of the discipline; those less kind strike at the
jugular by asserting that the nature of the subject matter, the relation of the
investigator to the phenomena under study, or both, will always prevent
economics from functioning as a proper scientific discipline.” The diversity of
responses from the economics community to these challenges is the basis for much
of the book. Reder shows how many different arguments have influenced the
behaviour of economists, and the esteem with which they are held by the
public.

Many serious questions remain about the scientific status of economics, and
Reder goes into these in some detail. “One reaction,” he points out, “has to be
to accept that prediction and control are criteria of successful sciences, and
to curtail the domain of the discipline accordingly, carefully limiting both
subject matter and the conditions under which such claims are made either of
prediction or control.” Today, Reder adds, most people consider these criteria
to be paramount. “In all sciences, and among the educated public, success in
prediction and/or control is usually considered to be the most powerful evidence
that can be adduced to support a theory or the discipline in which it is
produced. And failure to contribute to such success is generally considered good
reason for denying a theory or discipline approbation and support.” Reder also
notes those areas where economics has obtained practical results: helping to
shape a coherent view of the world, for example, or assisting in the creation of
institutions like the World Bank.

Take, for example, “the authority conceded to a small group of economist
game-theorists [which] was due partly to their prestige within the larger
community of economists”. Game theory, for example, helps to model the behaviour
of bidders in auctions for airways licences. Analysts used theorems of game
theory, says Reder, “to deduce the strategic implications of each set of rules
for the behaviour of each player, on the assumption that he would correctly
deduce every implication of the rules for every other player and calculate an
optimum strategy based on the assumption that every other player was behaving in
a similar fashion”.

But Reder is no apologist for the profession. He takes it to task in those
areas where analytical results of dazzling mathematical virtuosity are put
forward, but without any recognisable connection to any sort of real-world
economy.

So what does this all add up to? Economics: The Culture of a
Controversial Science is a fascinating account of the sociology and
philosophy of a profession. Reder acts almost as if he were an anthropologist
who has taken up residence in a strange jungle tribe, and is describing and
categorising its puzzling way of life. I would have preferred a style that was a
bit less academic and a bit more journalistic, in the sense of giving more
information on how the personalities of leading economists have driven the
profession. But no matter. This is an important book about an important field,
and deserves to be read by anyone who has ever wondered how Facts A and B are
able to comfortably coexist.

Predicting the Future by Nicholas Rescher, State University of New York
Press, £51/$65.50, ISBN 0791435539

MARCUS TULLIUS, better known as Cicero, statesman and poet, was reputed to be
ancient Rome’s greatest orator. He also claimed that two things underlay the
Roman government: ritual and divination. In his work De Divinatione,
Cicero presents an extended discussion of the pluses and minuses of divination,
eventually rendering the verdict that the liabilities far outweigh the
assets.

Having himself served for a time on the Roman Board of Augurs, Cicero
presumably knew whereof he spoke.

In light of the feverish and increasingly profitable activities of the
Beltway Bandits, the deep-thoughts-for-hire industry ringing Washington DC, it
seems safe to say that after two millennia we haven’t moved much farther along
the road to enlightenment than the Romans. We still want to know the future, and
are willing to shower riches and glory on those who look even superficially as
if they might be able to deliver the goods.

So, history is full of all sorts of wild schemes aimed at figuring out the
future. Gelomancy, for example, involves making predictions by translating
hysterical laughter into tangible terms—undoubtedly a useful procedure to
employ at academic and political conventions. Or there’s the daffy daphnomancy,
in which questions of great import are answered with varying degrees of yes or
no by throwing laurel leaves onto a fire. The louder the leaves crackle, the
better the omen; the deeper the silence, the worse the prospects.

The focus in these two books, however, is scientifically based prediction
methods. According to the lucid and entertaining accounts given by William
Sherden in The Fortune Sellers, apart from a few very rare things (the
motion of planets, say) almost everything that touches our lives is filled with
a kind of irreducible uncertainty that grows as we try to look weeks, months and
years into the future.

Sherden casts a critical eye on seven areas in which forecasts of the future
have become big business: weather, macroeconomics, finance, demography,
technology, organisational planning, and, perhaps most interestingly of all,
futurology—the future of the future itself. In an engaging and
entertaining style, Sherden tells the tale of the many prognosticatory pros who
have created a multibillion-dollar industry out of not just telling fortunes,
but selling them. With a deft combination of anecdotes, examples, and historical
facts and statistics, the book attempts to separate predictions one can count on
from vague, personal opinions and guesswork.

Among the most illuminating and entertaining titbits in The Fortune
Sellers is how futurologists exploit the feeble foundations of the social
sciences. Starting with the RAND Corporation’s Herman Kahn in the 1950s, they
have thus pontificated on the likelihood of everything from idyllic utopias to
1984-like totalitarianism.

In another fascinating chapter, Sherden spells out the reasons why reliable
forecasts of the weather more than about a week ahead will remain in the realm
of fantasy, regardless of whatever advances technology may bring. And for those
hungry for the secret key to riches on the financial markets, the book traces
the fascinating tale of how profits can actually be made from stock-market
predictions—but not by investing. In piling story upon fact upon
observation from his many years as a business consultant, Sherden’s book
presents a compelling argument for the case that there’s just no future in the
past.

Predicting the Future by philosopher of science Nicholas Rescher is
equally compelling, but for quite different reasons. Rescher states that “this
is the first book on the theory of prediction-in-general since Cicero’s
De Divinatione”. So, while Sherden offers an informal, almost journalistic
tour through the minefields of the predictive enterprise as it is practised
today, Rescher presents a general theory of prediction, ranging from its basic
principles and methodology to its promises and problems.

After setting the stage with an account of prediction through the ages,
Rescher begins by sorting out the difference between prediction (falsifiable or
verifiable statements) and forecasts (unfalsifiable or unverifiable
predictions). He discusses the relationship between prediction and probability,
as well as the theory of knowledge (its epistemology) and the nature of reality
(its ontology).

Rescher presents the core of his nascent theory of prediction through his
account of its methodologies. These range from completely unformalised
judgments—essentially personal opinions —to very formal schemes
based on laws of nature and mathematical modelling. The evaluation both of
predictions and of the methods used to make them are a crucial part of his
theory.

As Rescher says, the mere correctness of a prediction is neither necessary
nor sufficient to label either the prediction or the predictor “good”. Equally,
failure of the prediction doesn’t necessarily mean that it or the method was
bad. Many other factors, such as the level of accuracy of the prediction, its
credibility and its robustness, enter into the evaluation of its worthiness.

As noted many times in the Sherden book, allegedly perfect predictions have
been on offer by many of the less scrupulous “fortune sellers” in the prediction
game throughout history, if not longer. Like Hercules cleaning out the Augean
stables, Rescher deploys his theory to shovel away the confusion and
disinformation surrounding this particular holy grail. Put simply, there are no
perfect predictors of anything— except for trivial and meaningless
tautologies. Discussing barriers to predictability ranging from instability and
chaos to free will, innovation, and quantum indeterminacy, Rescher provides a
raft of reasons why we will never attain the nirvana of perfect
foreknowledge.

To many, the most puzzling aspect of prediction is why there exist pretty
good methods for prediction in some areas of human enquiry, but not others. Why
is it, for example, that prediction in astronomy can be so good while the
predictive tools of economics are so feeble that the field acquires a label like
“the dismal science”? Predicting the Future gives as good an answer to
this question as any volume I’ve seen. I won’t give away the punchline here, but
Rescher’s treatment alone is worth the price of the book.

Taken together, these books constitute as good an introduction as there is in
print today of the state of the predictive arts. The Fortune Sellers
tells it like it is about the way prediction is practised in the worlds of
commerce and industry, while Predicting the Future lays down a solid
philosophical and logical foundations for futurology. The bad news is that both
authors conclude that perfect prediction is impossible; the good news is that
these first-rate works give us the clearest possible explanation of why.