From the Department of LOL comes this post by Jeremy Majerovitz of the Federal Reserve Bank of St. Louis. The graph above pretty much says it all but this is his conclusion:
Economic forecasters provide useful information about the future state of the economy. But making predictions is hard, especially about the (distant) future. Even though forecasts can help, we must live with significant uncertainty about future economic conditions.
The TL;DR version of the piece is that although economists are pretty good at telling whether we’re in a recession now the precision of their forecasts decreases rapidly the farther in the future they’re projecting. When we say “future” we’re talking about quarters, 90 day periods, not years.
So 1 quarter away they are 17% accurate. Karnak would be better.
Steve
🙂 That’s why this is “under the Department of LOL”.
Can they? No. They can only observe positive or negative trends/situations. Economies are far too complicated, and subject to too many forces.
Woudth that the global warming crown could learn that lesson. It’s a theory that predicts nothing. How that “coming Ice Age†of the 70’s doing? Miami under water yet?
The question seems beside the point.
I’ll explain with an analogy. You are driving a car, assuming you are sane, not under the influence, and paying attention to the road.
Can you predict a collision — yes, your mind subconsciously predicts it all the time, and you will take counter-measures to prevent it — almost always successfully, so probably only 0.0001% of those predicted collisions occur.
Its the same with the economy, economists, and policy makers. There’s a whole field of economics, and an army of economists whose raison d’etre is to spot risks in the economy and propose counter measures. And given the consequences of recession; policy makers will listen hard.
And the toolbox that economists/policy makers use is not voodoo magic; monetary and fiscal policy are pretty effective, especially if you define growth through “next quarters GDP” without regards to longer term things like debt or inflation.
Hmmm. Not so sure, curious. The old joke is “what’s the definition of an economist? Someone who has predicted 10 out of the last 3 recessions.â€
And so now we are into the business of prescribing the exact wrong medicine at the exact wrong time…. Not that the Fed would ever do that. (Snicker).
The problem with economic forecasting is that economics – contrary to popular belief – is not math, it’s mostly mass social psychology, and the economics profession has utterly failed and making itself a version of psychohistory.
I do not know if you’d be surprised or not to learn that many economists chose economics as a profession after reading Isaac Asimov’s Foundation. Example: Paul Krugman
I did not know that, but I’m not surprised, considering how confident many economists are when making forecasts.