Which economic forecaster or economist can you really trust most of the time, if not all of the time?
December 20, 2007 1:57 PM Subscribe
Which economic forecaster or economist can you really trust most of the time, if not all of the time?
Please tell me whom you really trust.
I found an article about the real use of economists. Even though it was written in a Canadian newspaper back in 1991 , I think it still applies worldwide and in our times.
Tell me if I am wrong.
"THREE THINGS CEOs WANT TO KNOW ABOUT: -the timing of economic upturns -the timing of economic downturns -wild cards no one's thought of THREE THINGS ECONOMISTS AREN'T SO GOOD AT: -foreseeing economic upturns -calling economic downturns -warning about wild cards no one's thought of THINGS ECONOMISTS ARE REALLY GOOD AT: -predicting the past -not straying from the middle of the herd -alluding to 'The Fed' -sounding cautionary notes -explaining why the forecast was wrong
.....what do economic forecasters do really well? If you don't expect precision, most economists are pretty good at seeing where sets of assumptions lead. Indeed, economists try to get their clients to pay less attention to the monthly or yearly horoscopes than to a range of various hypotheses. "Forecasting," says George Vasic, director of Canadian economic services at DRI"McGraw-Hill, "is really an exercise in contingency planning. What most people are looking for is a range of scenarios that will provide insulation from a particular set of developments. Of course it's difficult. If it weren't, no one would be asking. The day we move to annual 3% growth and stable interest rates is the day a lot of economists will be unemployed."
Clients tend to agree. "I don't expect our forecaster to predict what wage rates will be in two years' time. That's useless," says Fred Belaire, corporate economic adviser to Atomic Energy of Canada Ltd. "I do expect a reasonable base case that will be in the ballpark if current assumptions hold. That's what we want to know: How is this forecast at risk?"
For firms negotiating contracts internationally, independent forecasters may provide a neutral, third-party assessment of project costs, bolstered by a global reach. Notes Kevin Alexander, director of pricing and program analysis at Boeing of Canada Ltd.: "Most companies can't afford the in-house expertise needed to evaluate all the countries they might wish to do business with."
Others need a longer perspective and some are convinced that forecasters can at least help them with such a model. "A mine takes three years to develop and might be in production for 50 years," says Ted Yates, Cominco Ltd.'s manager of market research. "If your forecaster can find the turning points in the five-year trend, he'll always outwit the guy who's only looking ahead three months."
....DOES THIS SOUND FAMILIAR? "How long will this recession last? Those who respond with facile assurance divide into two groups: those who do not know and those who do not know they do not know. The Great Depression of the Thirties lasted a full 10 years. The reputations of the most respected and luminous economic and financial figures of the time suffered badly from their repeated predictions that it would very soon be over." -John Kenneth Galbraith"
Source:
Gurus in Wonderland Most economic forecasters are more confused about what the future holds than we are. So why are we still listening to them?
MICHAEL POSNER
2911 words
19 April 1991
The Globe and Mail
Please tell me whom you really trust.
Thanks a million.
Please tell me whom you really trust.
I found an article about the real use of economists. Even though it was written in a Canadian newspaper back in 1991 , I think it still applies worldwide and in our times.
Tell me if I am wrong.
"THREE THINGS CEOs WANT TO KNOW ABOUT: -the timing of economic upturns -the timing of economic downturns -wild cards no one's thought of THREE THINGS ECONOMISTS AREN'T SO GOOD AT: -foreseeing economic upturns -calling economic downturns -warning about wild cards no one's thought of THINGS ECONOMISTS ARE REALLY GOOD AT: -predicting the past -not straying from the middle of the herd -alluding to 'The Fed' -sounding cautionary notes -explaining why the forecast was wrong
.....what do economic forecasters do really well? If you don't expect precision, most economists are pretty good at seeing where sets of assumptions lead. Indeed, economists try to get their clients to pay less attention to the monthly or yearly horoscopes than to a range of various hypotheses. "Forecasting," says George Vasic, director of Canadian economic services at DRI"McGraw-Hill, "is really an exercise in contingency planning. What most people are looking for is a range of scenarios that will provide insulation from a particular set of developments. Of course it's difficult. If it weren't, no one would be asking. The day we move to annual 3% growth and stable interest rates is the day a lot of economists will be unemployed."
Clients tend to agree. "I don't expect our forecaster to predict what wage rates will be in two years' time. That's useless," says Fred Belaire, corporate economic adviser to Atomic Energy of Canada Ltd. "I do expect a reasonable base case that will be in the ballpark if current assumptions hold. That's what we want to know: How is this forecast at risk?"
For firms negotiating contracts internationally, independent forecasters may provide a neutral, third-party assessment of project costs, bolstered by a global reach. Notes Kevin Alexander, director of pricing and program analysis at Boeing of Canada Ltd.: "Most companies can't afford the in-house expertise needed to evaluate all the countries they might wish to do business with."
Others need a longer perspective and some are convinced that forecasters can at least help them with such a model. "A mine takes three years to develop and might be in production for 50 years," says Ted Yates, Cominco Ltd.'s manager of market research. "If your forecaster can find the turning points in the five-year trend, he'll always outwit the guy who's only looking ahead three months."
....DOES THIS SOUND FAMILIAR? "How long will this recession last? Those who respond with facile assurance divide into two groups: those who do not know and those who do not know they do not know. The Great Depression of the Thirties lasted a full 10 years. The reputations of the most respected and luminous economic and financial figures of the time suffered badly from their repeated predictions that it would very soon be over." -John Kenneth Galbraith"
Source:
Gurus in Wonderland Most economic forecasters are more confused about what the future holds than we are. So why are we still listening to them?
MICHAEL POSNER
2911 words
19 April 1991
The Globe and Mail
Please tell me whom you really trust.
Thanks a million.
You can't trust any of them, because they affect the economy when they make predictions. The more broadly read they are, the more of an effect they'll have.
Plus, you have the Fed in the center of everything; with its ability to produce endless dollars on demand, they can profoundly affect the economy in ways that can't be predicted.
posted by Malor at 2:24 PM on December 20, 2007
Plus, you have the Fed in the center of everything; with its ability to produce endless dollars on demand, they can profoundly affect the economy in ways that can't be predicted.
posted by Malor at 2:24 PM on December 20, 2007
I'm seconding "none." Here are a couple good books that informed my opinion:
Expert Political Judgment
A Random Walk Down Wall Street
posted by L. Fitzgerald Sjoberg at 2:27 PM on December 20, 2007
Expert Political Judgment
A Random Walk Down Wall Street
posted by L. Fitzgerald Sjoberg at 2:27 PM on December 20, 2007
What was that adage? I think it was something along the lines of "Economists were put on Earth to make Weathermen look good."
posted by Weebot at 2:50 PM on December 20, 2007
posted by Weebot at 2:50 PM on December 20, 2007
If someone could predict economic upturns, downturns, and wild cards, do you really think they'd tell you? Wouldn't they be keeping that information a secret, and using it to pile up a huge amount of money?
I've forgotten the name of it, but there's some mutual fund out there whose stock never splits. It's something like $4000 per share. It consistently beats the market -- but part of the reason why is that they never tell anyone what they expect to happen. They just go out and invest -- and do great.
If any economist or forecaster is giving away his predictions, then that's an indication of how much he thinks they're worth. Which is to say, "nothing".
posted by Steven C. Den Beste at 3:08 PM on December 20, 2007 [1 favorite]
I've forgotten the name of it, but there's some mutual fund out there whose stock never splits. It's something like $4000 per share. It consistently beats the market -- but part of the reason why is that they never tell anyone what they expect to happen. They just go out and invest -- and do great.
If any economist or forecaster is giving away his predictions, then that's an indication of how much he thinks they're worth. Which is to say, "nothing".
posted by Steven C. Den Beste at 3:08 PM on December 20, 2007 [1 favorite]
I've forgotten the name of it, but there's some mutual fund out there whose stock never splits.Berkshire Hathaway?
posted by trinity8-director at 3:44 PM on December 20, 2007
A combination of the annual shareholders report of Berkshire Hathaway Inc and whatever echos I hear from the Carlyle Group. It gives me a good idea of where private and public equity is flowing.
posted by ruelle at 3:47 PM on December 20, 2007
posted by ruelle at 3:47 PM on December 20, 2007
I feel like you and I might have a different idea of 'trust' in this context, cluelessguru.
If you mean economists-as-scientists, instead of television talking heads or newspaper op-ed columnists or politicians or whatnot, then I trust all of 'em. I don't always agree with all of their baseline assumptions, and I certainly don't expect their predictions to always come true, but they're making the best guesses they can with the tools and information available to them.
Just like meteorologists.
posted by box at 4:27 PM on December 20, 2007
If you mean economists-as-scientists, instead of television talking heads or newspaper op-ed columnists or politicians or whatnot, then I trust all of 'em. I don't always agree with all of their baseline assumptions, and I certainly don't expect their predictions to always come true, but they're making the best guesses they can with the tools and information available to them.
Just like meteorologists.
posted by box at 4:27 PM on December 20, 2007
I'll quote Dean Baker "It would be helpful if the many articles reporting on economists' predictions about the future state of the economy reminded readers that economists do not forecast recessions. For whatever reason (I don't care to speculate), economists are notoriously bad at seeing recessions coming, even when they are right in front of their face.
In the fall of 2000, not one of the "Blue Chip 50" forecasters saw the 2001 recession coming. The Philadelphia Fed's Livingstone Survey in December of 2001 saw nothing but clear skies ahead. Even in June of 2001, three months after the recession is now dated as having begun, the wise forecasters still saw a relatively healthy scenario, including a 1455 S&P 500 by the end of 2002 (try 900).
One of my favorite Greenspan moments was when he spoke confidently at a Fed meeting in July of 1990 that the economy looked healthy for the immediate future. The recession is now dated as having begun in June of 1990.
The point here is that there is an incredible bias among economists that prevents them from seeing recessions until they are well underway. (I'm the only one that predicts recessions that don't happen.) This information should be included in a cautionary note in articles on economic forecasts."
Even the NBER, generally considered the official source for indicating the beginning and end date for recessions, doesn't make its determination until many months after the event. For example they dated the beginning of the last recession to be March 2001, but it wasn't until November of that year that they were able to make that determination. The end of the recession they dated to be November 2001 (just about the time they were just recognizing its start) but they didn't make that determination until July 2003. Sixteen of the last 31 Nobel Prize laureates in Economics have worked at the NBER and if they can't even recognize the economic cycles until months after they have occurred, I wouldn't put too much stock in forecasts for the future.
posted by JackFlash at 4:48 PM on December 20, 2007 [1 favorite]
In the fall of 2000, not one of the "Blue Chip 50" forecasters saw the 2001 recession coming. The Philadelphia Fed's Livingstone Survey in December of 2001 saw nothing but clear skies ahead. Even in June of 2001, three months after the recession is now dated as having begun, the wise forecasters still saw a relatively healthy scenario, including a 1455 S&P 500 by the end of 2002 (try 900).
One of my favorite Greenspan moments was when he spoke confidently at a Fed meeting in July of 1990 that the economy looked healthy for the immediate future. The recession is now dated as having begun in June of 1990.
The point here is that there is an incredible bias among economists that prevents them from seeing recessions until they are well underway. (I'm the only one that predicts recessions that don't happen.) This information should be included in a cautionary note in articles on economic forecasts."
Even the NBER, generally considered the official source for indicating the beginning and end date for recessions, doesn't make its determination until many months after the event. For example they dated the beginning of the last recession to be March 2001, but it wasn't until November of that year that they were able to make that determination. The end of the recession they dated to be November 2001 (just about the time they were just recognizing its start) but they didn't make that determination until July 2003. Sixteen of the last 31 Nobel Prize laureates in Economics have worked at the NBER and if they can't even recognize the economic cycles until months after they have occurred, I wouldn't put too much stock in forecasts for the future.
posted by JackFlash at 4:48 PM on December 20, 2007 [1 favorite]
I keep hearing this phrase (or something like it) on news reports lately: "Economists have predicted 10 out of the last four recessions."
So yeah, nobody.
posted by Camofrog at 5:36 PM on December 20, 2007
So yeah, nobody.
posted by Camofrog at 5:36 PM on December 20, 2007
I like the analysis at Calculated Risk. He hasn't had enough chances to be right that I would trust huge bets to his predictions, though. He was one of the first to predict the current housing downturn, but you could make the argument that was relatively easy to forsee, as long as you weren't bamboozled by the bubble mentality (I saw predictions of it as far back as 2003.) Also, his analysis seems heavily specialized to housing.
posted by Coventry at 5:47 AM on December 21, 2007
posted by Coventry at 5:47 AM on December 21, 2007
I trust a top-grossing local realtor to know what her local market for real esate is going to do in the next 12-24 months. I trust a good broker or adviser at a major firm to tell me generally which stock market sectors are going to be at the top and bottom of the pile in the next 3 to 6 months. For this to be of any use, you have to have access to these top performing people and you have to be able to listen to what they are trying to tell you. Not everyone can do that.
When it comes to forecasting overall market performance, recessions, and interest rates, I trust William Goldman and Jim Cramer, who said "Nobody knows anything" and "They know nothing," respectively. (They were commenting on different issues when they said those things.)
Warren Buffett, Peter Lynch, and George Soros are famously successful investors whose writings I've enjoyed; all three have consistently been on message, in writing, over a period of several decades, that they do not believe that any person or entity can accurately forecast macroeconomic trends over the long term. I think they're right about that.
posted by ikkyu2 at 11:48 AM on December 21, 2007
When it comes to forecasting overall market performance, recessions, and interest rates, I trust William Goldman and Jim Cramer, who said "Nobody knows anything" and "They know nothing," respectively. (They were commenting on different issues when they said those things.)
Warren Buffett, Peter Lynch, and George Soros are famously successful investors whose writings I've enjoyed; all three have consistently been on message, in writing, over a period of several decades, that they do not believe that any person or entity can accurately forecast macroeconomic trends over the long term. I think they're right about that.
posted by ikkyu2 at 11:48 AM on December 21, 2007
This thread is closed to new comments.
No one.
Please tell me whom you really trust.
No one. But Paul Kasriel is one of my favorites. As are David Rosenberg and Richard Bernstein.
Tell me if I am wrong.
You're not wrong.
George Vasic is at UBS now, and he's pretty good, as well as a nice guy.
posted by Kwantsar at 2:09 PM on December 20, 2007