Princeton emeritus professor Avinash Dixit is always worth reading, even when he is speculating about the economy over the next hundred years. Likening economic forecasting to weather forecasting (plenty of caveats and uncertainty), his approach is suitably sceptical. Here’s how he kicks off:
At least one prediction can be made with high confidence… in the course of the next century there will be several financial and economic crises. Each crisis will be preceded by a boom and by a state of euphoria, when almost everyone will believe that “this time is different; we have learned how to avoid crises, and have finally learned the secret of how to sustain the Great Moderation.”
When the crisis hits, policymakers everywhere will be shocked and unprepared. Their panicked responses will merely paper over the real problems and sow the seeds of the next crisis a few years down the line.
Dixit lays out some provocative scenarios for our economic future. The chapter, entitled The Cone of Uncertainty of the 21st Century’s Economic Hurricane (PDF), will appear in In 100 Years, ed. Ignacio Palacios-Huerta, to be published by MIT Press in 2013.
