Friday, August 14, 2009

Economists: not the best recovery forecasters

I wrote an article some time back about the pathetic recovery expected by Economists. In that article, Spencer (of Angry Bear) gave the following comment (please read the entire comment, as Spencer's argument is not represented here in full):
Maybe this time will be different and we may actually have a weak recovery, but just remember that economist have a long and repeated history of underestimating the strength of recoveries.
I myself did not know that Economists have a very good track record of undershooting recoveries. However, I did a little digging through old files at work and found Blue Chip forecasts around the end of the 1981-1982, 1990-1991 recessions, and a DRI forecast (now known as Global Insight, couldn't get Blue Chip) at the end of the 2001 recession (recession end determined much later by the NBER). The forecast way undershot the actual growth rate for the first year of recovery in two of the last three recessions - by 2.3% in the 1983 recovery!

Ahem. Don't be too surprised if they mess it up again!

Rebecca Wilder

3 comments:

  1. I gotta say, I'm not worried about them missing the upside.

    I'm worried they're going to talk people into misjudge risks by thinking it's all over as we hit the next leg down.

    I'd be taking a look at economists predictions in '29,'30,'31...

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  2. Doomsday: You are entirely correct, as is Rebecca. In many areas of science, one is aware of the factors contributing to 'self oscillation'. If the suspension on your car, for instance, weren't damped, every time you hit a bump, you'd be bouncing up and down for many times until the energy was dissipated.

    Ditto for economics. Many of the rules of physics apply, albeit in analogous forms.

    I was thinking about Rebecca's point a lot in the lat while.

    It's impossible not to with Canada setting *all time records* for house sales at this time! (That is city specific, but Vancouver, for instance is up 90% in terms of sales July/July.)

    Is that sustainable? Not in the least! It is a *bounce-back*.

    It is *essential* that 'the economists' get their outlook corrected, or we're all going to be going up and down for a long time...and I don't mean sex.

    I'll contribute more on this later, there have been many warnings on misreading exactly this point, but one heads-up I'm compelled to note right now is this one for Oz:
    http://business.smh.com.au/business/why-were-better-off-with-the-dragon-than-uncle-sam-20090814-el4i.html

    Gittins is an accredited economist, been writing fore the Fairfax group of newspapers in Oz for years. He's no wildman.....

    There's real flak in the UK right now re Germany and France ostensibly out of 'the recession' and the UK is going in deeper.

    What I found astounding (and I'm a Brit/Cdn dual) is how incredibly off the mark many UK commentators are.

    They know something is amiss, complaining is part of being British, but they can't get it throught their fat nuggens (collectively) that others got it right, and that they should learn.

    To repeat: Neither Ozx nor Canada had bailed out a single bank or needed to!

    That is now reflected in record house sales in Oz and Can.

    One only hopes the damping mechanisms are suffice to imbue stability again long-term. I believe they are...but...examination never hurts.

    Weather fantiastic here today. Must get out and cycle (bicycle that is) while the sun shines.

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  3. Rebecca: You're blog this time has me unable to 'decouple'.

    Just doing the quick blitz on the UK Press, and I see this:
    [qt]Of 47 economists responding to a survey by The Wall Street Journal, 27 say the recession has ended, and 11 more say the trough has been reached or will be by next month. They expect the economy to grow at an annual rate of 2.4% in the current quarter, and many look forward to a 2.75%-3% growth rate by year-end. [/qt]

    http://business.timesonline.co.uk/tol/business/columnists/article6797825.ece

    By the infamous Irwin Stelzer, who gets his guidance from Above (the Hudson Institute) oh yes, and big bucks.

    Very unprofessional of me, but Rupert has been very dilligent in making sure that barbed questions to the News Corp Sage don't get published...

    Whatever, I'd like to see the source for Irwin's poll. Same News Corp org. Odd how he doesn't reference it.

    I have little respect for the man...what he writes on week he can total negate the next purely on Capitalist whim....

    but his point is intriguing as that relates to Rebecca's blog.

    And for the record, I'm a Capitalist, of the Socialist kind, ya know, up in Canada, where the banks didn't ask for a cent and didn't get one.

    Real socialist like...

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