Monday, June 17, 2013
“In November of 2008, as stock markets crashed around the world, the Queen of England visited the London School of Economics to open the New Academic Building. While she was there, she listened in on academic lectures. The Queen, who studiously avoids controversy and almost never lets people know what she’s actually thinking, finally asked a simple question about the financial crisis: “How come nobody could foresee it?” No one could answer her.”
“If you’ve suspected all along that economists are useless at the job of forecasting, you would be right. Dozens of studies show that economists are completely incapable of forecasting recessions. But forget forecasting. What’s worse is that they fail miserably even at understanding where the economy is today. In one of the broadest studies of whether economists can predict recessions and financial crises, Prakash Loungani of the International Monetary Fund wrote very starkly, “The record of failure to predict recessions is virtually unblemished.” He found this to be true not only for official organizations like the IMF, the World Bank, and government agencies but for private forecasters as well. They’re all terrible. Loungani concluded that the “inability to predict recessions is a ubiquitous feature of growth forecasts.” Most economists were not even able to recognize recessions once they had already started.” Read the full article here.
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