Monday, August 15, 2016

Economic Forecasts: Lies or Idiocy? Part I

June 30, 2011 by · Leave a Comment 

By Jeff Nielson, Bullion Bulls Canada

There was an interesting report from Reuters today, which (for the first time) takes an aggregate look at the utterly futile/incompetent “forecasts” which have been inflicted upon us by Western “economists” and “experts” over the past four years. It is nothing less than a litany of failure and disgrace.

There are two aspects to this piece which make it very useful. First, it provides a considerable list of anecdotes illustrating the mind-numbing incompetence of these mainstream prognosticators. Then it goes one step further and offers an explanation for such pervasive failure. Let’s begin with the former.

- The May U.S. non-farm payrolls report and Philly Fed Index both reported numbers worse than the lowest “forecast” of the dozens of “experts” who participate in those surveys for the mainstream media

- In June 2008, not one of the “top-24” economists in the UK predicted a recession (with “similar” figures in the U.S.)

- None of the 24 “experts” polled by Reuters predicted that the UK economy would contract in the fourth quarter of 2010.

- Those same “experts” were too optimistic on 20 out of 27 categories of economic statistics for the U.S., UK, and the Euro zone for both the months of April and May

More generally, the margin of error for these pseudo-experts in their predictions for GDP have gone from 0.1% (pre-crisis) to 0.5% (today). Put another way, their forecasting of this vital economic statistic is now only 20% as reliable as it was a mere four years ago. What Reuters fails to add is that the huge increase in the bias/inaccuracy of these forecasts is invariably to the up-side.

Obviously, when an entire flock of “experts” demonstrates a large, consistent bias toward “optimism”, one explanation immediately leaps out to explain this sudden lapse in accuracy: these experts are in fact nothing but market-pumping shills, continually telling the investing community that “things are getting better” in order to lure them (and their money) into the banksters’ casinos (i.e. our equity markets).

The two Reuters writers who compiled this piece were (strangely) unable to identify the motive which I found so obvious, however (to their credit) the writers come up with an explanation which also plausibly accounts for the sudden and horrendous inaccuracy of economists and market experts. They label this phenomenon as assumptions of “mean reversion”.

The premise is quite simple. The “reason” why all these economists/experts have suddenly and consistently displayed a grossly over-optimistic bias for the past four years is that they “expect” our economies to “revert to the mean”. In other words, rather than restricting their analysis to the actual data in front of them, they are allowing their analysis to be biased/clouded by assuming that our economies “must” move back toward the long-term trend of economic performance. Of course there is an even simpler term which accurately describes what these experts and economists have been doing for the past four years: they have been guessing.

To this point in my analysis, we are presented with two explanations as to how/why all of our experts and economists have suddenly and consistently had the accuracy of all of their forecasting plummet by 80%, all the while demonstrating a clear and unmistakable bias to the up-side:

1) The obvious explanation: our “economists” and “experts” are nothing more than market-pumping shills.

2) The Reuters explanation: that this esteemed collection of experts has either suddenly reverted to merely making guesses on their forecasts for our economies, or that they have always been simply guessing – we just never had economic data extreme enough to expose these charlatans until the last four years.

Before I offer two deeper, darker explanations of my own for this phenomenon, let me spend a little time expanding on my “simplification” of the Reuters explanation as implying mere guesswork by the Western world’s most highly-respected “voices” on our economies.

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