The economics profession has always had a bad rap for being indecisive. President Truman once said he wanted a one-handed economic adviser because his economic advisers would always say, “on one hand... and then on the other hand...”, giving him conflicting advice.

The Canadian-American economist J. K. Galbraith stated emphatically, and perhaps more accurately, that there were two classes of forecasters: “those who don’t know and those who don’t know they don’t know”.

As we have navigated through the tribulations of the last five years or so, many (most?) economists have failed spectacularly. The majority underestimated dramatically the depth and duration of the economic recession caused by the COVID-19 pandemic. Thereafter, most central banks vastly underestimated the resurgence of inflation post-pandemic. There was a general inability to predict the impact of QE on financial markets which resulted in a widespread failure to foresee the resulting asset price inflation and market distortions.

Given the many abject failures of recent economic analysis, it is exciting that questions are now focussing on how generative artificial intelligence will radically change matters and whether, in the near future, economics will be replaced by LLM and generative AI, both of which are currently advancing at breakneck speed. https://lnkd.in/dT6wTbBT

A recent research paper from The Federal Reserve Bank of St. Louis demonstrated that an AI model they had developed “understands the request for inflation forecasts” and “provides an inexpensive and accurate alternative to traditional forecasts.” In fact, their predictive model produced fewer errors than those of the Survey of Professional Forecasters (SPF) which aggregates forecasts made by a variety of economists including “tenured professionals working in the field of macroeconomic forecasting with advanced degrees in economics or related fields”. https://lnkd.in/dt-GsEtX

Generative AI, in the very near future, will be ideally placed to identify optimal policy in a variety of settings and undertake nearly all of an economist’s current tasks: reviewing literature, observing the current economy, deducing from existing models and eventually coming up with new and better models.

SoftBank CEO, Masayoshi Son, recently also predicted that artificial general intelligence will come widespread within 10 years. If and when this is the case, all bets are off for all of us involved in the dismal science!

#economics #recession #inflation #QE #generativeAI #llm