It’s that time of the year when everyone wants to know the economic future. Although economists are highly involved in the prognostication business, their forecasting skill is about as good as guessing. FULL ARTICLE by Douglas French
Source link: http://blog.mises.org/11281/fortune-sellers/
Fortune Sellers
Previous post: The Case for Ebeneezer
Next post: The Spirit of Press Interference
{ 9 comments }
Economic prognostication is also popular at many professional organization events every January. The forecasts aren’t very accurate, but the most influential people in many industries attend these events. Last year I spent $95 for a buffet-style “economic breakfast.” The speakers weren’t very impressive, but I met, and sat next to the CEO of one of the largest commercial real estate brokerages in the U.S. Getting to know him justified the price.
No problem, the way is clear. We’ll see more Fiat money and
more money creation. We may see a few state bankrupts, but our politiians will tell us “Don’t worry, just give up more of your rights and hand us your money and you’ll be fine”.
That was really easy….
I love the people that come on CNBC and announce that they see the chance the economy will expand is 50%. Greenspan did that several times!
Then there are the people like Peter Schiff that take one side of the trade and sticks with it. Surprise, some day they will be right! Then when they are finally right, they get more press and run for the Senate. Or he could be the pitch man for 1-800-GOLD.
Bottom line, anyone getting it right 51% of the time is a true market wizard.
“If economists could make such a prediction, “Nobody would derive any advantage from the economists’ forecast; at the very instant this forecast was uttered and accepted as correct, the crisis would already be consummated.”
Not necessarily. Because there are many competing forecasts, people will choose different forecasts to base decisions on. Only those forecast that are correct will profit.
If nothing t all about the future were predictable, that would mean that no economic principle exist. Human behavior would be totally unpredicable. At the extreme, we would never be able to tell if people will buy more or less of a product if the price rose. It would be random. And if that were the case, then entrepreneural insight would have no effect because the outcome of all decision would be the effect of random events, like roulette.
That is what Mises had in mind. As Hayek wrote, specific quantitative predictions are impossible, but qualitative ones are not only possible but necessary and good. Using the ABCT, we can make qualitative forecasts and even get the timing fairly close.
Based on that, I see the stock market continuing to rise as it has been due to monetary pumping by the Fed. People have been surprised by the 60% rebound in the S&P 500, but that happened in the midst of enormous pessimism with many people on the sidelines. Think what will happen with continued monetary pumping and optimism!
CPI inflation will kick in because of state spending increases and medical cpi will soar thanks to the health care bill.
At the same time, unemployment will remain high due to uncertainty caused by politicians.
There is no point to being the richest guy in the graveyard. The trick is to find a briar patch that pays the bills and stay there.
The down side is that most briar patches these days are government jobs. Maybe the best always were.
Greg:
“Then there are the people like Peter Schiff that take one side of the trade and sticks with it. Surprise, some day they will be right!”
You have got to be kidding me. The man’s been right on most of his calls since the late 90s. US stocks have done poorly, gold and oil have done very well, the dollar went down and he even shorted subprime. Not only did he call the Nasdaq and real estate bubbles, he also explained the real estate bubble in great detail.
Had he just said “apocalypse will come” for 10 years then you might have a point.
He certainly didn’t get every single thing right(mostly about the timing of his predictions), but to say that he’s a broken clock is not accurate either. Of course he still has some predictions that haven’t come true, so time will tell on those.
>>Sherden also dedicates a chapter to futurology, the prediction of societal change, as well as a chapter on science, where he points out that “no one knows when or if global warming will take place and what the consequences will be for human activity around the world.”
Well, I was fearing _that_ throwaway line. Of course no-one does. Five years ago, no-one knew when or if the economic crash would take place or what the consequences would be for human activity around the world. Of course, those who actually applied basic economic principles and eschewed the desire to factor in fancyful, magical events knew that it was pretty much inevitable and would have grave consequence. Doubts about a process do not, unfortunately, limit the malignancy of said process. Otherwise many cancer patients would still be alive.
Wintermute: “Doubts about a process do not, unfortunately, limit the malignancy of said process.”
We don’t know all of the processes that cause cancer, but we have no doubt whatsoever about the consequences. With global warming, we don’t know what the results will be or the processes. There should be many good things come from it as well as bad. Why focus on just the bad?
Economists always include the caveat, “certeris paribus” when stating theories and laws. Even brilliant economists flub forecasts because all other things are never equal; things are always and everywhere changing. Thus it is possible that, contrary to the laws of supply and demand, as the price of a product increases people will buy more of it because some other factor(s) that influence their decision to buy or not buy have changed, more than offsetting the negative affect of the higher price.
The problem with forecasting isn’t that events are random but that a man or woman’s knowledge of all the factors that influence the market is manifestly imperfect. Mises said, “Entrepreneurs and capitalists expose their own material well-being if they are fully convinced of the soundness of their plans. They will never venture to take their economic life into their hands because an expert advised them to do so.”
Successful entrepreneurs and capitalists do not publicly forecast their moves, unless they are trying to bamboozle the competition; they act–before others realize what they are up to and try to horn in on their plans. It is obviously easier and safer to forecast than to act.
Comments on this entry are closed.