Especially about the future. Benn Steil of the Council on Foreign Relationships recalls the Federal Reserve Board of Governors’ predictions made in 2007 of the state of the economy in 2010:
The Fed started publishing the Board of Governors’ and Reserve Banks’ three-year forecasts in October 2007. At that time, the GDP growth forecasts among this group of 17 ranged from 2.2% to 2.7%. Actual 2010 GDP growth was 3%, outside the Fed’s range.
The Fed forecasters told us that unemployment in 2010 would be in a range between 4.6% and 5%. In fact, it averaged about twice that, or 9.6%. The forecasters further predicted that both Personal Consumption Expenditures inflation (PCE, similar to CPI) and core PCE inflation would be in a range from 1.5% and 2%. The former came in at 1.3% and the latter at 1%, again outside the Fed’s range. The Fed’s scorecard on its 2007 three-year forecasts: 0 for 4.
In short, the Fed’s premise that it can speak with authority about the future is flawed. During the two decades to 2006, its own experts were worse than outside ones in predicting one-year economic data. Since the start of the crisis in 2007, its three-year predictions have been worthless.
Or, more pithily, the only function of economic forecasting is to make astrology look respectable. As has happened with weather forecasting I think real-time monitoring, reporting, and recording of economic data will improve. The difference between the weather and the economy is that economics is a science of human behavior and humans as intentional if not intelligent actors respond to the forecasts in a way that the clouds, winds, and air do not.
We will always have would-be economic engineers, Hari Seldons (whom any number of economists credit for inspiring them to go into the field) ready to manipulate the forces of human nature in futile efforts at controlling the economy. When we can’t even agree about what happened in 2007 in 2012, it shouldn’t be too surprising if those efforts remain at best futile and at worst perverse for some time to come. Put your trust in God, my boys, and keep your powder dry.