Noah Smith and economists cannot forecast when the next recession will be

Noah Smith is ranting today about how economists cannot forecast the timing of recession. He doesn’t use the most obvious argument.

recession chart

That argument is if you are any good at picking the timing of the next recession, you wouldn’t go around talking and telling other people and publishing in the paper for all the world to hear.

You  would keep quiet and trade in your own account, signing futures contracts and share options to take maximum advantage of seeing further than others. Show me the money, as Murray Rothbard explained:

Many studies, formal and informal, have been made of the record of forecasting by economists, and it has been consistently abysmal.

Forecasters often complain that they can do well enough as long as current trends continue; what they have difficulty in doing is catching changes in trend. But of course there is no trick in extrapolating current trends into the near future.

You don’t need sophisticated computer models for that; you can do it better and far more cheaply by using a ruler.

The real trick is precisely to forecast when and how trends will change, and forecasters have been notoriously bad at that. No economist forecast the depth of the 1981–82 depression, and none predicted the strength of the 1983 boom.

The next time you are swayed by the jargon or seeming expertise of the economic forecaster, ask yourself this question: If he can really predict the future so well, why is he wasting his time putting out newsletters or doing consulting when he himself could be making trillions of dollars in the stock and commodity markets?

Karl Popper argued that the job of the economist and other social scientists is not to be a prophet but to make conditional predictions such as if circumstances A apply, B will ensue. To do any more is to fall for the age-old allure of the prophet and his prophecies.

via Economists’ Biggest Failure – Bloomberg View.

1 Comment (+add yours?)

  1. nottrampis
    Mar 06, 2015 @ 15:47:00

    Economists can pick recessions although not exactly when economic models cannot pick recessions.

    Same in Australia in both 1982 and 1991

    Liked by 1 person

    Reply

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