Why do we listen to economists who are always wrong?

On July 28, more than 30 so-called ‘top economists’ called for a wealth tax in the UK. Glance at the list of signatories and you’ll see the usual names who oppose almost any market reform: Thomas Piketty, Ha-Joon Chang and Martín Guzmán. Ironically, just over a year ago, many of them signed another letter warning against Javier Milei’s reform programme in Argentina, which they described as ‘potentially harmful’ to the Argentine people.

Fast forward to today, and historian Niall Ferguson calls Argentina’s economic turnaround a ‘man-made miracle’. Milei ended Argentina’s fiscal deficit for the first time in 123 years. Annual inflation plunged from 211.4% in 2023 to 43.5% by mid-2025. UNICEF reports that 1.7 million children have been lifted out of poverty since he took office and according to Econométrica’s EMAE, the economy grew by 8% year-on-year in April.

This habit of high-profile economists being spectacularly wrong is hardly new. In 1981, 364 university professors signed a ‘Statement on Economic Policy’ warning against Margaret Thatcher’s reforms. At the time, Tim Congdon quipped: ‘The open question is not, are the 364 economists wrong, but how wrong are they?’ Four decades later, the more pressing question is: why are these left-leaning economists always wrong?

A broken clock is right twice a day. A clock five minutes fast is never right. These economists are the latter, and the reason isn’t bad luck but bad theory. They think markets work only under unrealistic neoclassical assumptions such as perfect information and perfect competition. But this was never why Friedrich Hayek defended markets. He was famously critical of ‘perfect competition’ as a description of the real world. His case for markets rested instead on their discovery process: in real life, participants lack full information, and markets are not fully efficient and competitive, but the discovery process of entrepreneurial trial and error moves us closer to efficiency over time. Entrepreneurs seek profits and make life better for others not because they are angels, but because markets reward those who find and fix inefficiencies. 

In other words, markets are not tools for producing a pre-defined ‘optimal’ outcome, the sort of abstraction Ronald Coase mocked as ‘blackboard economics’. They are dynamic, adaptive discovery processes. And experimental economics backs this up: Vernon Smith’s Nobel Prize-winning research on double-oral auctions showed that even without perfect information, markets could reach equilibrium and competitive outcomes. 

Yet these economists judge markets not against the state, but against an idealised standard no system could ever meet: the nirvana fallacy. Markets are not efficient because we assume they are; they become efficient through a discovery process in which profit and loss guide innovation, reduce inefficiency and generate wealth. This process is what makes markets a better alternative to the state. Implicitly, these critics assume the state can correct market imperfections – ignoring that it suffers from its own limits of knowledge and benevolence. If they judged the state by the same standard they apply to markets, the picture would change: both have flaws, but only one has a built-in mechanism for improvement.

So why, despite such a track record of failed predictions, do they still command enormous media attention, sell best-selling books and shape policy debates? Here, the neglected economist Kenneth Boulding offers a clue. In his 1962 essay ‘The Misallocation of Intellectual Resources’, he noted that unlike capital markets, the ‘market for ideas’ lacks a clear feedback mechanism. As he observed, in the realm of intellectual resources ‘we have no simple measure, as we do with financial capital, in the shape of a clear rate of return’. Bad ideas can harm millions, yet still be cherished.

Consumers can abandon a bad restaurant after one meal; voters cannot so easily connect harmful ideas to real-world outcomes. As Joseph Schumpeter put it: ‘The typical citizen drops down to a lower level of mental performance as soon as he enters the political field’. The people advocating the policies are often not the ones who suffer from their consequences. 

To be fair, economic forecasting is hard, especially in a field dealing with ‘atoms with emotions’. But we must avoid two extremes: the German Historical School’s rejection of any universal theory on one side, and the technocratic ‘pretence of knowledge’ on the other. The belief that we can predict precise quantitative outcomes is a mistaken one. Economics is a powerful tool, as Milei and Thatcher both demonstrated, but its power lies in free people making their own choices, experimenting and discovering better ways of doing things, not in experts drawing up grand blueprints for society.

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