Are economic crises predictable?

https://www.youtube.com/watch?v=-8H-6VHUt9s

Peter Kopa, 11.9.17

In a solemn academic ceremony at the London School of Economics in 2008, the Queen of England asked why no one had predicted the economic crisis at that time. Curiously, no one could give her a satisfactory answer. Robert Lucas, the 1995 Nobel Laureate in Economics, was able to demonstrate with convincing logical arguments that these crises are not at all predictable. 

This small academic event triggered a great discussion among specialists in the field, about the background of the neoclassical theory that holds that man, as ‘homus oeconomicus’, always behaves rationally.  The problem posed by this theory is to think that the future is a function and a result of the past. The second problem is to assume that markets always behave efficiently.

However, experience teaches us that the past cannot be extrapolated to the future and also that the economy is not always rational, because other motives also act in man, such as the fear of loss, ignorance of all the factors that affect the market, etc., etc. In order to correct these deficiencies, high scientific authorities of the London School of Economics have advocated the re-evaluation of the Austrian school represented by its maximum exponents, Prof. Hayek and Schumpeter.

According to the Austrians, deduction is preferable to induction in the interpretation of economic developments, because if it is done correctly, it leads to certain conclusions and inferences that must be true if the underlying assumptions are accurate. The Austrians argue that induction does not guarantee certainty as does deduction, since real-world economic data are inherently ambiguous and subject to a multitude of influences that cannot be separated or quantified, one cause or the correlation with another. Therefore, they claim that empirical statistical methods, natural experiments and constructed experiments have no way of verifying cause and effect on real-world economic events, since economic data can be correlated to multiple potential chains of causality. 

The Austrian School of Economics opposes that the economy can be indirectly controlled by the State through monetary emission, but it obeys its own laws in which the State should not interfere under penalty of suffocating it or putting it in a straitjacket.

Source:  NZZ and own sources.