Join Early Retirement Today
Reply
 
Thread Tools Display Modes
"The Secret to Economic Growth? We Just Don’t Know."
Old 11-06-2011, 11:23 PM   #1
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,856
"The Secret to Economic Growth? We Just Don’t Know."

Business Week reports on a study of economists' ability to predict the economy:
What’s the Secret to Economic Growth? We Just Don’t Know - BusinessWeek

Quote:
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.

In their 1997 paper trying to explain “Africa’s Growth Tragedy,” former World Bank staffers Bill Easterly and Ross Levine noted that in the 1960s, Africa was expected to grow faster than East Asia over the next 30 years by many, if not most, development economists. In the same decade, the economic model in the Soviet bloc was widely touted as a harsh but highly successful approach to escape poverty—not least because the Soviet Union had an immensely high investment rate. We know now, of course, that Africa stagnated and Eastern Europe collapsed, while East Asia boomed.

And so predicting future growth in developing countries is pretty much a fool’s errand. But economists are not much better at simply explaining why growth happened where and when it did in the past.
In defense of economists, it's also tremendously difficult to predict hurricanes, earthquakes, and other natural disasters...
__________________
*

Co-author (with my daughter) of “Raising Your Money-Savvy Family For Next Generation Financial Independence.”
Author of the book written on E-R.org: "The Military Guide to Financial Independence and Retirement."

I don't spend much time here— please send a PM.
Nords is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 11-07-2011, 05:19 AM   #2
Administrator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,586
Quote:
Originally Posted by Nords View Post
In defense of economists, it's also tremendously difficult to predict hurricanes, earthquakes, and other natural disasters...
Pretty harsh on the meteorologists and geologists, aren't you? Remember what Galbraith said: there are two classes of economic forecasters: Those who don't know, and those who don't know they don't know.
MichaelB is offline   Reply With Quote
Old 11-07-2011, 07:47 AM   #3
Thinks s/he gets paid by the post
NYEXPAT's Avatar
 
Join Date: Jul 2009
Location: Miraflores,Peru
Posts: 1,992
When it comes to earthquakes which are pretty frequent in SA, I have found this site to be very helpful and a constant reminder to keep our earthquake kit/ family plan, refreshed and accessible

Earthquake predictions, largest regional earthquakes
NYEXPAT is offline   Reply With Quote
Old 11-07-2011, 08:58 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 17,203
Quote:
Originally Posted by Nords View Post
In defense of economists, it's also tremendously difficult to predict hurricanes, earthquakes, and other natural disasters...

Are you making the comparison to economists based on two years out

Because they are getting pretty good at hurricanes... and are not horrible on some natural disasters such as floods... at least better than 2 in 60.... if you look at the normal lead time for these disasters...

PS... usually not that bad on snow storms either from what I see on TV...
Texas Proud is offline   Reply With Quote
Old 11-07-2011, 02:28 PM   #5
Moderator Emeritus
M Paquette's Avatar
 
Join Date: Oct 2007
Location: Portland
Posts: 4,946
Short term forecasts in economics are similar to weather forecasts. They're trying to pick a near term trend in a chaotic (literally) system. Longer term, the trend dominates, and we can get a better guess.

Here's a little something I worked up on the longer term trend, built on the behaviors economies show in balance sheet recessions (AKA credit crunch or liquidity crunch).

Non-political economists (the ones you never hear about, and who don't get invited in TV) don't see GDP growth getting up to the 3.5-4% range until late 2015 to 2016, and unemployment remaining above 6% until 2016. Those are consensus numbers. The 'Blue Chip' numbers (August 2011 Blue Chip Consensus Forecast extended with March 2011 Blue Chip long-run survey of 50 private sector forecasts) has real GDP chugging along at around 2.6-3.1% til 2021 (it doesn't go past that...), and unemployment over 6% til 2017.

Most of this is due simply to the impact of the balance sheet recession and the sheer amount of time it takes to pay consumer and commercial debt back down from the highs of 2007 (300% of GDP) to the longer term more normal level around 50% of GDP. Various proposed federal fiscal policies and programs move the GDP growth number up or down by about 0.4% and unemployment number by about 1%.

This will be a long haul...
M Paquette is offline   Reply With Quote
Old 11-09-2011, 12:04 AM   #6
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,856
Quote:
Originally Posted by MichaelB View Post
Pretty harsh on the meteorologists and geologists, aren't you?
I'm married to a meteorologist who used to be the ops officer at the military's Joint Typhoon Warning Center. I watched the sausage getting made every day. And every night. And weekends & holidays too.

I'm referring not to the 10-day forecasts but rather to the prognosticators who say "The Bay area is overdue for a 7.6 earthquake!" or "There will be five CAT4 hurricanes in the Atlantic this summer" along with other incredibly precise "estimates".
__________________
*

Co-author (with my daughter) of “Raising Your Money-Savvy Family For Next Generation Financial Independence.”
Author of the book written on E-R.org: "The Military Guide to Financial Independence and Retirement."

I don't spend much time here— please send a PM.
Nords is offline   Reply With Quote
Old 11-09-2011, 06:43 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 4,629
Reminds me of a graph I saw (I think) in one of Mankiw's textbooks. It was consensus inflation predictions at different points from 1975 through 1985. On the way up, the consensus consistently underestimated future inflation rates. On the way down, they consistently overestimated. I think the point was that it's very hard to get away from a bias to predict a continuation of recent experience.
Independent is offline   Reply With Quote
Old 11-10-2011, 11:27 AM   #8
gone traveling
 
Join Date: Apr 2011
Posts: 3,375
Pay off your debts. Don't spend more than you take in unless your growth rate is higher than the interest rate you're paying. Any country (or person) not grown & prospered by doing that?
gerntz is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Economic Growth - Are We Approaching A Limit? grumpy FIRE Related Public Policy 67 08-13-2011 09:39 AM

» Quick Links

 
All times are GMT -6. The time now is 07:20 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.