Canada and the World
Current Events with a Canadian Perspective
Last update
06 February 2012
Economists Can’t Predict the Future
The role of the economist is to advise what will happen if a certain course of action is taken;
however, the profession’s recommendations
were badly wrong over the recession
The years 2008 and 2009 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 worry warts 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 1997 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, most 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-
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-
Republican candidate for the presidential nomination Ron Paul and his economic adviser
Peter Schiff also saw the mess coming. So did economist Marc Faber, the Hong Kong-
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-
Image credit
Lisa solonynko
Pascal
Sources
The Fortune Sellers. William A. Sherden, Wiley, ISBN 0471181781, October 1997
“Economists who Predicted U.S. Economy Crisis See Recovery in 2010.” Reuters, January 14, 2009
“Nouriel Roubini: I Fear the Worst is yet to Come.” Dominic Rushe, Sunday Times, October 26, 2008.
“A Manic Depression.” Paul Kedrosky, Globe and Mail, May 1, 2009.
© Canada and the World, July 2010
Updated November 2010
All rights reserved
IT TAKES A CHIMP
In his 2010 book, Future Babble: Why Expert Predictions Fail -
In writing about the book in The Globe and Mail (November 17, 2010) Neil Reynolds
comments: “Mr. Gardner makes the animal-