Economists Can't Predict the Future
The Financial Meltdown not Forecast by Most Experts
Jun 15, 2009
Recent years have not been good ones for economists. Few of them were able to foresee the financial calamity of late 2007 coming. Those that did were written off as worrywarts because so many people were making so much money with the system as it was.
Economists Have a Bad Record on Predictions
Economists have a tendency to disagree with each other – a lot. It’s been said that economists were invented to make the forecasts of weather people look reliable. In his 1999 book “The Fortune Sellers,” William A. Sherden attacked economists, among others, for making faulty predictions. He studied virtually all the economic forecasts made between 1970 and 1995. His analysis was that, “Economists’ forecasting skill on average is about as good as guessing.” He also revisited a 1985 study by The Economist that reported how sanitation workers actually tied for first place with heads of multinational firms as predictors of England’s economic growth.
Economists Failed to See Recession Coming
More recently, some mainstream economists have been embarrassed by their failure to see the current economic meltdown coming. Reuters news agency quotes Fortune Magazine as listing some of those who misread the signs that problems lay ahead; the roll call includes the crème de la crème of the financial world.
“Alan Greenspan, former Federal Reserve Chairman; Ben Bernanke, the current Federal Reserve Chairman; Hank Paulson, Treasury Secretary; the financial industry analysts of Moody’s, Fitch, Standard & Poor’s; Wall Street CEOs including Stan O’Neal, the CEO of Merrill Lynch; James Cayne, CEO of Bear Stearns; Chuck Prince, CEO of Citigroup; Zoe Cruz, CEO of Morgan Stanley; and Angelo Mozilo, CEO of Countrywide Financial.”
Those who Foresaw Recession Scoffed at
Not so Nouriel Roubini, an economics professor at New York University.
The Sunday Times (October 26, 2008) wrote that in September 2006 Mr. Roubini told a meeting of the International Monetary Fund that, “A once-in-a-lifetime housing bust would lay waste to the U.S. economy as oil prices soared, consumers stopped shopping, and the country went into a deep recession.”
That speech earned him the title of Dr. Doom. The Times continued: “While the economic sun was shining, most other economists scoffed at Roubini and his predictions of imminent disaster. They dismissed his warnings that the sub-prime mortgage disaster would trigger a financial meltdown.”
Republican candidate for the presidential nomination in 2008 Ron Paul and his economic adviser Peter Schiff also saw the mess coming. So did economist Marc Faber, the Hong Kong-based publisher of the Gloom, Boom & Doom report.
No Consensus on Economic Recovery
Now that factories have closed, pensions have been gutted, and governments are wallowing in ever deeper lakes of debt, what do the economists have to say? Kauffman Foundation senior fellow Paul Kedrosky wrote in The Globe and Mail (May 2, 2009) that there is no consensus.
“More stimulus or less stimulus? We had prominent economists arguing both sides. Lower interest rates or higher interest rates? Again, economists on either side. Deflation or inflation as the major concern? Economists on both sides of the question.”
He added that it is “publicly and embarrassingly obvious that economics, outside of a few basic pricing, trading, and profits tenets, has so little consensus as to make astrologers look predictable when it comes to policy prescriptions.”
U.S. President Harry S. Truman would certainly agree. The first president to appoint a council of economic advisors, Truman eventually grew tired of listening to them hedge their comments.
“I want a one-armed economist,” he said, “so that the guy could never make a statement and then say ‘on the other hand...’ ”
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