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.

I’m afraid that both Zerohedge and Mish misunderstand what’s behind Chinese automaker Great Wall’s opening an assembly plant in Bulgaria:

Great Wall this week became the first Chinese automobile manufacturer to open an automobile assembly plant inside the European Union in the latest move suggesting the country’s carmakers are seeking to establish a beachhead into the European market.

Bulgarian Prime Minister Boyko Borisov on Tuesday attended the opening of Great Wall’s new factory in the northern Bulgarian village of Bahovitsa. The plant is to be operated jointly by Great Wall and the Bulgarian firm Litex Motors.

Let me try to explain. I predict that Great Wall’s Bulgarian plant will import all of its parts from Chinese factories. Bulgarian workers will assemble finished automobiles from probably quite large subassemblies and the finished cars will be sold as “Made in the European Union” and can be sold throughout the EU without facing duties.

This is about market not cost of production. The Chinese have limited their costs by opening the plant in Bulgaria, the EU’s poorest country and where labor costs are the least and they’ll probably only employ a relative handful of workers. Pretty cheap way to gain entrée to the largest marketplace in the world (aggregate GDP and population of the EU is larger than that of the U. S.).

I’ve said it before and I’ll say it again: there is no future for the auto manufacturing business either in the U. S. or in Europe, particularly for low cost autos. China can cut the legs off of any competitor.

It may just be my imagination or the natural human tendency to try to see order in something that’s chaotic but I seem to see a common theme emerging lately: our leaders are dealing with the problems they wish we had rather than the problems we actually have. Or, in a variant, acting as though the economy were something other than it actually is. One example of this is from Daniel Henninger’s column today at the Wall Street Journal:

In his State of the Union Address, Mr. Obama described what will be a major claim of his re-election campaign—that he renewed the American dream by bailing out General Motors. About the defensibility of this policy we can argue. But as is his wont, Mr. Obama erected a generalized theory of social betterment atop this one event. “What’s happening in Detroit can happen in other industries.” Mr. Obama announced. “It can happen in Cleveland and Pittsburgh and Raleigh.”

It can?

What’s interesting about this claim is that the corridor between Cleveland and Pittsburgh, much of it economically moribund for years, is experiencing a rebirth thanks to real economic forces, not a president who types in the name of another beleaguered city and hits Ctrl-Shift-Enter to solve its problems.

Most of this revival is taking place around the godforsaken city of Youngstown, Ohio, and the formerly dying steel towns west of Pittsburgh, an area better known today as the Marcellus Shale Natural Gas Field. Last summer, a French steel company, Vallourec & Mannesmann Holdings Inc., began construction on a new $650 million plant to make steel tubes for the hydraulic fracking industry. About 400 workers are building it. Nothing Barack Obama has done in three years—not the $800 billion stimulus or anything in his four, $3 trillion-plus budgets—is remotely related to the better times in Ohio and Pennsylvania.

But other than grudging acknowledgment of the private entrepreneurs’ natural-gas success, don’t expect to hear the carbon-based word “fracking” much in the president’s stump speech when he paints in the numbers of the American economy as he imagines it. That pitch will run more toward the ideas in the Presidential Memorandum released this Tuesday, directing the Department of Agriculture to put in motion a program called “Promoting a Bioeconomy.”

He goes on to describe the Obama Administration’s embrace of a program, started under the Bush Administration, to encourage the production of products derived from biological sources rather than “chemicals or petroleum bases”. Ignore the clumsy diction that suggests that if it’s biological it isn’t chemical which is absurd.

As a side question how is making soap or deodorant from food crops or using land suitable for food crops to produce crops used to make soap or deodorant morally superior to using corn to produce ethanol to use as fuel?

The key point is that we shouldn’t subsidize “biobased” products whether fuel or sundries or whatever. We shouldn’t subsidize electric cars or solar panels or any other purportedly “green” technology. What we should do is eliminate agricultural subsidies and subsidies for the production of coal and oil. Or introduce Pigouvian taxes which represent the actual cost that coal and oil impose on the economy in one form or another (including hundreds of thousands of U. S. soldiers and sailors in the Middle East).

Products should rise and fall on their merits. Doing otherwise doesn’t produce jobs on net it reduces them.

We’ve got to start dealing with the economy we have rather than the one we wish we had. In the economy we have fossil fuels will continue to be important for the foreseeable future. In the economy we have labor unions, while vital in ensuring that working conditions are safe and just, won’t be able to secure middle class incomes for unskilled workers. In the economy we have large companies, those with 500 or more employees, will be of decreasing importance in employment while smaller companies will be of increasing importance. Further, the future is overwhelmingly likely to one of gigs rather than jobs. See Walter Russell Mead’s recent post for more on this subject.

I’ve just published some foreign policy-related posts at Outside the Beltway:

Just Rattle the Saber More Loudly
Another Drumbeat Heard From

In the first post I comment on David Ignatius’s column which provides today’s drumbeat to war with Iran. If we want to avoid an illegal, immoral, and futile war with the Islamic Republic, newspaper columnists (not to mention Republican presidential candidates) need to stop banging the drum, tone down the rhetoric, and let cooler heads prevail.

In the second I briefly take note of a column from an Israeli columnist which, apparently, urges the U. S. to attack Iran.

Karl Smith writes something that I think should make nearly all of us nervous:

At its heart the issue is that Industrialization Really Was Different, and there is no reason to think it will come again.

The reality of this new world is that you cannot simply work hard and make a good living. Nor, should you expect that if you save for your future you can support yourself.

As for now, it is still in the interest of innovators to tap public equity markets and doing so means that they come under some – but not absolute – pressure to pay a dividend.

However, I have a hard time believing this will not come to an end. The money available in private pools will be sufficiently large that innovators can strike side deals that let them walk away with almost all the profits.

Savers will get nothing.

All of our institutions are geared towards a very, very different world than the one that Dr. Smith describes. Many of those institutions have preferential access to power and will fight like the dickens to preserve their prerogatives. Fasten your seatbelts, we’re in for a bumpy ride.

I heard this song in the background of an ad for the Wounded Warrior Project and was curious about it. Listening to it without the voiceover for the ad I found it very moving.

Of the fifteen richest counties in the United States ten are suburbs of Washington, DC.

Must be something in the water that makes the people there so smart and hardworking.

Yesterday I caught a little of the 1962 movie Jimmy Stewart movie, Mr. Hobbs Takes a Vacation. Not my favorite Stewart picture but I haven’t seen it in years and it isn’t shown too often so I thought I’d watch a bit of it. One of the featured performers was a buxom, blonde European starlet, Valerie Varda, of a type pretty popular at the time viz. Anita Ekberg, Elke Sommer, the Gabor sisters, etc. I was curious about what had become of her so I did a little research.

After doing a little television and a couple of completely forgettable movies she married a prominent LA attorney and retired from show biz. Fast forward twenty-five years. Her 19 year old son, André, died of a brain tumor in 1995. On the first anniversary of their son’s death her husband killed himself.

Rather than succumbing to grief and inspired by people she’d met while taking care of her son, she founded, in her son’s honor, the River of Life Foundation, a not-for-profit organization with a mission of providing financial support for single parents or single caregivers caring for a child stricken with a life-threatening disease.

Life happens to us, sometimes taking us down strange and unexpected paths.

Bryan Caplan muses on why Ben Bernanke changed once he’d become Fed chairman:

Ben Bernanke was my teacher, and a major influence on my macroeconomic thinking. When he became Fed chairman, I expected the best of him. I was sorely disappointed. His behavior as Fed chairman seemed utterly disconnected from his lectures and writing. In 2008, I kept wondering why he backed the madness of TARP instead of following his own long-standing prescriptions.

Most of the economists I talked to simply dismissed this path not taken. Amidst the chaos, something had to be done. Why couldn’t that “something” be Bernanke’s inflation targeting? Oh, the zero nominal bound. But what about Bernanke’s dismissive writing about the zero nominal bound? You don’t understand, Bryan: We have to do something or the world will end. Eventually the noble Scott Sumner came along, explained my original position better than I ever could, and changed a lot of minds that originally dismissed me.

Still, a mystery remained. If Sumner’s right, why on earth did Bernanke act as he did? Why discard a lifetime’s worth of insight into monetary policy when the world economy was on the line?

I think there’s a pretty simple explanation. In business there used to be a wisecrack: “Nobody ever got fired for recommending IBM”. I’m not sure what the contemporary equivalent would be. Microsoft? Maybe that’s dated, too.

The point is that it takes real courage to do something other than what’s expected. The pressure to go with the flow, to follow the prescriptions of a majority of economists is just overwhelming.