Poor Economist Land Predictions
Give a hundred thousand…take a hundred thousand…it’s all in a day’s work for the modern economist. We know of no other line of employment where someone could be so consistently wrong and still have a place to drive to five days a week. Well, no line of employment outside of politics, that is…although we might file politics under “mental condition,” rather than “day job.”
Now, one hundred thousand might not seem like much these days, especially when so many numbers with so many zeros are so regularly bandied about. It might seem a bit distant, almost unreal in a way. Well, it’s certainly very, very real for that many people who weren’t expecting to lose their jobs last month…then did. It will feel very real to the restaurant owner when those people don’t call to make reservations. The struggling car dealer/maker will certainly feel it when they don’t come to test drive any new vehicles. Banks too will get the reality check when that many people can’t pay their loans back. The same goes for the banks’ banks and their banks too.
Gee whizz, one hundred thousand people sure do add up quickly. But the world’s largest consumer didn’t lose one hundred thousand jobs last month…that was only the difference between Economist Land predictions and hometown reality. The real figure, as by now you have surely committed to memory, was much worse.
Before the jobs report shocked green-shoot enthusiasts (into deeper denial, no doubt), Bloomberg had gathered 79 of the brightest economists in the land to hear their forecast. Predictions ranged from 150,000 at the low end to 500,000 at the other. Now, what does this massive discrepancy tell us if not that these guys had no clue in the first place? Does the guy whose math led him to stand up and say “150,000” still have a job? Will he chance on a closer guess next time and, if so, will we be listening to his expert opinion on television later that day because of it?
It’s no use wondering how these guys get it so wrong so often. Let us not forget, Rude reader, these are the same guys, from the same schools, who stood at the peak of Dow 14,000, cast their view toward the horizon and pronounced in clear, confident tones, “Calm waters ahead captain…nothing to report but prices rising to infinity for the rest of eternity.”
What the thoughtful investor might ask himself instead is why he still pays these neckties any mind at all. He may also wish to bear in mind that terminal incompetence is not safely confined to small time financial prestidigitators. The biggest and the loudest are all too often also the… eh, “wrongest.”
Before taking office, Ben Shalom Bernanke himself spoke of the “Great Moderation.” In his address to Eastern Economic Association in the nation’s capital, Bernanke acknowledged three possible explanations for the long calm, which he called “structural change, improved macroeconomic policies, and good luck.”
Mr. Bernanke didn’t see much reason to praise Lady Fortuna’s handywork, of course, preferring instead to congratulate his own profession for its pivotal role in everlasting financial tranquility and blissful economic calm. So confident was he, in fact, that he even thought it prudent to tempt fate…
“…if the Great Moderation was largely the result of good luck rather than a more stable economy or better policies, then we have no particular reason to expect the relatively benign economic environment of the past twenty years to continue.”
“Indeed,” Bernanke challenged, “if the good-luck hypothesis is true, it is entirely possible that the variability of output growth and inflation in the United States may, at some point, return to the levels of the 1970s.”
We imagine Mr. Bernanke would gladly take the tumult of the ’70s over what he has on his hands today. For some reason, the Princeton graduate mistakenly equates complexity with strength and resilience. The reader may wish to employ a Jenga visualization to understand how this is not always the case. [Tip: You can even write “MBS,” “CDO” and other complex derivative acronyms on the little Jenga blocks for added effect.]