Friday, December 07, 2007
Seeing only doom: The impossibility of predicting the direction of the economy
As sort of a follow-up on my post earlier in the week on the economy's vector, read John Wixted on the difference between predictions for the economy (prospectively gloomy for more than four years) and the actual results. Best line:
Higher than economists were expecting? Get out. Who would have ever thought that possible?
That said, most economic disasters have also come as a surprise.
2 Comments:
By 
Georg Felis, at
Fri Dec 07, 12:39:00 PM:
Do failed Economists become Weathermen, or do failed Weathermen become Economists?
By Charlottesvillain, at
Fri Dec 07, 12:59:00 PM:
I suspect this post may be at least partially aimed at me, as I have made some rather gloomy predictions of late.
The track record of economists is certainly worth taking into consideration. What is it they say, "Economists have predicted 12 of the last 4 recessions," or something to that effect.
Then again, Elroy Dimson at London Business School defined risk as when more things can happen than will happen. Its very important not to lose sight of that.
I am not an economist, but I think handicapping whether or not we are likely to have a recession in the relatively near term comes down to whether or not the Fed can reverse recent trends and engineer the continued expansion of credit, which fuels all expansions. Currently credit is contracting in a big way, which is why I predict recession. I think it will be hard to reverse this trend based on the fact that recent rate cuts have failed to stimulate credit growth. But maybe they can pull it off.
In the interests of full disclosure, I should mention that I am still very much long equities, since I've never been able to predict the market, and it usually goes up (or has since 1982, anyway). But I've taken some precautions as well to lessen the blow should they fail.
