Economists are like diapers
Economists love to make forecasts. The problem is: most economists are like diapers, they require frequent changing and for the same reason (i.e. they are full of crap). Don’t spend too much time thinking or worrying about economic forecasts, they are seldom if ever right.
This may seem like an overly harsh judgment, but I cannot think of any profession that has a worse track record (even politicians seem to do better, and from me that’s quite a concession).
Most economists are either from or in academia. Their focus is on an other-worldly fantasy that has few similarities to the world we live in. Not surprisingly, this ivory tower approach leads to terrible forecasts.
You would think this would bug economists, but it doesn’t. Most seem quite happy to profess theories based on assumptions they will gladly admit are false. They are more concerned with theoretical elegance and mathematical precision than with accurately predicting reality.
One school of thought is that markets are always efficient–they are always rational in the sense of an unemotional investor with all the facts at their disposal. I don’t know any unemotional investors, and any experience with markets would quickly convince any honest person that markets are not rational in the short term (though they definitely are over the long term).
Another school of thought is that markets are irrational and thus require government intervention. But, if the human beings in the market are irrational, what prevents government employees–also human beings as far as I know–from not also make irrational decisions in their intervention? No answer is given.
Another school of thought is that the government printing money can solve bad lending. But, if printing money fixes problems, then why not just print it all the time and make everyone happy always. Sounds like a perpetual motion machine to me (more accurately: hyper-inflation).
Another school of thought is that the government can cut taxes while continuing to spend recklessly. But, if it’s dumb for an individual to spend beyond his means forever, why would it be smart for a government to do so? Because the government exists on another plane of reality?
Another school of thought refuses to make precise predictions because it acknowledges the impossibility in the realm of human endeavors. Paradoxically, this seems to be the only school that correctly foresaw the Great Depression, the inflation of the 1970’s, the Internet Bubble, and the Housing/Credit Bubble. No one listens to this school, it’s considered fringe by many, and is taught in only a handful of colleges (Auburn is one).
Next time you hear or see an economist make a prediction–on the radio, in print, on TV–keep in mind the field’s lousy record. Remember they are mostly academics with little success in predicting real world events.
Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.
Economists are like diapers