Steve Williamson has written a review of John Quiggin's Zombie Economics that is based neither on flippancy nor personal insults. Kudos to Steve! I encourage everyone to read the whole thing, which also serves as a pretty good gloss of the entire field of modern macro.
Which is not to say that I agree with everything Williamson writes. Far from it. For example, Williamson defends economists' failure to predict the financial crisis by appealing to the Efficient Markets idea:
By its nature, a ﬁnancial crisis is an unpredictable event. We could have an excellent model of a ﬁnancial crisis. The people living in the model world where the ﬁnancial crisis can happen know it can happen, but they can’t predict it, otherwise they could proﬁt in advance from that prediction. Similarly, an economist armed with the model will not be able to predict a crisis in the real world.
This idea can be generalized to the following principle:
"Assuming efficient financial markets, any event that has relevance for asset prices cannot be predicted in advance."
That is false. For example, consider large asteroid impacts. An impending asteroid impact is quite predictable with modern astronomy and good telescopes. You know when and where it will happen. And it definitely will have a large impact (heh) on asset prices. There is no efficient-markets paradox here. To see why, consider two possibilities:
Case 1: We cannot prevent asteroid impacts. If this is the case, the predictable effect of the asteroid will be incorporated into asset prices shortly after the astronomers confirm the impending event.
Case 2: We can and will prevent asteroid impacts. In this case, the asteroid impact won't happen (and will thus not have an effect on asset prices).
In Case 1, Williamson is wrong. Scientists can predict impending events, even though they can't profit from them. And society benefits from scientists' ability to predict the event (since we will have time to prepare and mitigate the effects of the disaster). The invention of modern astronomy turned what was previously unpredictable into something now quite predictable. John Quiggin is thus perfectly reasonable in calling for economists to improve their crisis-forecasting ability. The invention of better crisis forecasting techniques would not earn excess returns in financial markets, but would be of social benefit.
In Case 2, Williamson is semantically right but substantively wrong. If we knock the asteroid aside with a nuke, then technically, the impact never happened. But we know it would have happened if we hadn't acted. The fact that we stopped it from happening doesn't make the astronomers' prediction "wrong." In this case, "predicting" something really means making a contingent prediction: "IF we don't act, this thing will happen." John Quiggin is perfectly reasonable for asking economics to try to make predictions in this sense. If we were able to see a financial crisis coming and managed to head it off, I somehow doubt that Steve Williamson would fold his arms and snicker and say "See? Crisis didn't happen. Looks like you guys were wrong!"
Moral of the story: The EMH does not imply that we live in a non-causal Universe. That is a misuse of the idea. Predicting the future is often possible and socially beneficial, even when no one can use the predictions to make excess returns. And contingent predictions need not be reflected in prices at all. If you hear someone making the argument that the EMH absolves the econ profession from any responsibility to forecast future events...don't fall for it!