Economics is a dismal science. We call it that because everyone likes to talk about economics as a core of their investment process, but it does not seem to help. If it did, the returns driven by active management would outrun passive investing. Most of us know that active management is a challenge and most professional managers underperform the popular averages. Even more frustrating, the economics profession has never predicted a recession since the dawning of the republic. Yes, there has been an economist here and there who predicted a downturn from time to time, but these are outliers. At the end of the day, economists are like baseball players. If they bat 300, they are considered the best hitters in the game. Said another way, the best economists are wrong 70% of the time.
There is a fundamental real reason the profession fails. The vast majority of economists apply the Keynesian school of economics. Even as it has been discredited over and over again, and even Keynes admitted that his theory of economics has no predictive power, his teaching dominates the profession and it is virtual the only school of thought taught at universities today. Yes, they touch on the monetary school and the Austrian school, but these are afterthoughts at best. The problem with Keynesian economics is that it does not have a theory of capital and is therefore incapable of building a business cycle framework.
