Issues in Identifying Economic Crises: Insights from History

Economists have been blamed for their inability to forecast and address crises. This paper attributes this inability to intertwined factors: the lack of a coherent definition of crises, the reference class problem, the lack of imagination regarding the nature of future crises, and sample selection biases. Specifically, economists tend to adapt their views on crises to recent episodes, and omit averted and potential crises. Threshold-based definitions of crises run the risk of being ad hoc. Using historical examples, this paper highlights some epistemological shortcomings of the current approach.