My own personal idea of Hell is to be trapped on the Disney ride featuring the earworm of this post’s title for eternity. I came very close to experiencing that firsthand, something I may have mentioned in an earlier post. Howsomever, when I read Robert Samuelson’s most recent column I was predisposed to dislike it practically from its first sentence:
To understand the economy, you have to resort to psychology. Throughout the recovery, forecasters — including those at the Federal Reserve and the International Monetary Fund — have repeatedly overestimated the economy’s strength. They’ve predicted faster economic growth than has occurred.
While I agree with Mr. Samuelson that economics is a social science in which psychology plays an important role, unlike physics or chemistry, I don’t think you can explain the underperformance of the U. S. economy solely on the basis of malaise, as he seems to want to do.
The balance of his column consists largely of citing opinion polls citing the opinions of people around the world about their domestic policy. Oddly, Mr. Samuelson alludes to the variation, i.e. that local differences affect local opinions of the economy, but refuses to run with it. Riddle me this: if a declining U. S. public opinion of the economy explains the U. S. economy, how does a rising Chinese opinion of the Chinese economy explain the slowing growth of the Chinese economy? Or the collapse of the Chinese stock market since the start of the year?
Let me propose an alternative explanation for the failure of predictions. The worthies he cites as failing to predict the slower growth we’ve actually experienced because they’re strongly predisposed to believe certain standard models of the economy and those models have lost their predictive power, largely on the basis of globalization.
I’m skeptical that anyone can predict the behavior of the U. S. economy at all but even more skeptical that you can even get the directionality right without taking into account the economies of China, Japan, Germany, the UK, Brazil, and Australia (just to name a few major players).
Does anyone know of scholarship attempting to model the global economy? I know of good models of the U. S. economy but I haven’t checked back with them lately to see how well they’ve been doing, prediction-wise.
I also feel impelled to point out that the tools to regulate the world economy are completely lacking. We’ve adopted a global economy which will remain regulated at the local level to the extent it’s regulated at all. My prediction is hold on to your hats, we’re in for a bumpy ride.