Four years ago we economists were writing learned papers about the “Great Moderation”: about how it looked as though the governing institutions of the world economy had finally learned how to control and moderate if not completely eliminate the business cycle–the epileptic seizures of the economy that leave us with pointlessly high unemployment, pointlessly idle capacity, and pointlessly rusting away machines in spite of there being no fundamental cause for machines to be idle, factories closed, and workers unemployed. In such an epileptic seizure of the economy, workers are unemployed and machines are idle because there isn’t the demand to employ them, and there isn’t the demand to employ because the workers are unemployed and have no incomes.
We have been seeing these epileptic seizures called business cycles fairly regularly since at least 1825.
And we have been claiming that we have it licked fairly regularly since 1825 as well.
British Prime Minister Robert Peel thought we had it licked with his Bank of England reforms in the 1840s.
While some of the explanations in that post are to my mind a bit off, the overall message is that economics is still not very good at predicting what will happen with the economy.