The Unassuming Economist

Via Bloomberg Businessweek. Charles Kenny writes “You would think that, armed with so much learning, their powerful models, and reams of data, economists would have anticipated that the recovery in the U.S. and Europe would stall, that growth in such places as China, India, and Brazil would accelerate, and that poverty rates would plummet in Africa. You’d be wrong.

A few years ago, Prakash Loungani of the IMF looked at the accuracy of short-term economic growth forecasts by industry experts across a range of countries. Sixty recessions occurred in the countries he studied during the period covered by the forecasts. A grand total of two of those 60 were predicted by forecasters a year before they happened—which means the other 58 took economists by surprise. Two-thirds of all recessions remained unpredicted by April of the year in which they occurred. “The record of failure to predict recessions is virtually unblemished,” Loungani concluded.

So don’t put too much credence in predictions either of a double-dip recession or of an economic recovery in the U.S. over the next 18 months. We just don’t know. Pretty much the only safe bet is that something will happen.

Loungani’s study was relatively limited in scope: It looked at economists’ attempts to predict economic shifts a year or two out in a set of largely advanced countries. Imagine the much larger challenge of predicting longer-term growth outcomes in a wider range of countries—not just rich ones, but also the Nigerias and Vietnams of the world. In fact, there’s no need to imagine: We are awful at it.”

Kenny is a fellow at Center for Global Development and the New America Foundation.

The Economic Times (India) summarizes my recent work on Information Rigidity in Growth Forecasts: Some Cross-Country Evidence (joint with Herman Stekler and Natalia Tamirisa).

From today’s New York Times — “The record of failure to predict recessions is virtually unblemished,” wrote IMF economist Prakash Loungani in one of many papers demonstrating the near-universal truth that economists’ predictions are least accurate when they are most needed. Read the rest of the New York Times excerpt of this new book on the dismal record of economic forecasting by Dan Gardner.