Where is the economy headed? Don’t ask an economist

 

This should be easy. I'm an economist, after all. Or does that mean I'll get it wrong.

My sister has worked for the OECD in Paris for 20 years. I’ve asked her a couple of times about the sorts of things that the economists around the organisation  have been saying about the current recession (and believe me, that place is jammed full with economists). As she says, the OECD economists only seem to be able to tell you what went wrong, not predict that it was going to happen. In the early days of the recession, when confronted about the economic downturn,  these economists would mumble incoherently about bubbles, cheap credit and US property prices before absent-mindedly wandering off. For this reason, we probably shouldn’t get our hopes up over the OECD’s latest prediction that the global recession is ending:

The recovery might prove a little stronger than previously predicted, OECD chief economist Jorgen Elmeskov told Reuters in an interview where he elaborated on the forecasts for several key economies.

“Compared with expectations a few months ago, we now have a recovery which … may be coming a little earlier and it may be slightly stronger because financial conditions have improved more rapidly than we assumed a few months ago,” Elmeskov said.

Many commentators deride economists, comparing them to weather forecasters. In fact, weather forecasters are a damn sight more accurate than economists. No, economists are more like politicians – they tend to cluster in polarised camps and entrenched ideological positions that are largely determined by the schools of economic theory—such as Austrian. Keynesian, Chicago—into which they have been indoctrinated.

Pure figures can sometimes tell us more than any economist, so I try and find the scariest that I can. This from the Illinois State Examiner:

The drunken spending of politicians has tripled the record breaking Bush deficit, creating a phenomenal $3 million of new national debt every single minute (not total government spending, but new government debt). As a result, during the 8 hours of time you will spend at work today, the US government will go more than $1.4 billion into debt.

Much of this money is going into keeping unemployment benefits rolling. Normally in the US, unemployment runs out at 26 weeks. But in the current recession, as Ian Cooper at Wealth Daily reports …

Congress is under pressure to extend benefits again. Legislation already bumped unemployment programs to 79 weeks… which just about triples the norm. And there’s already talk of a 13-week extension for states with 9%+ unemployment… at a cost of around $70 billion.

The great fear is social unrest and a rise in crime rates. I suggest you can’t keep a lid on these for long anyway. Not when you look at graphs like these:

 

Jobs-Day-Teaser_Table_1

 

Look at that Change column above. That is major. Or how about this one:

 

Jobs-Day-Teaser_Figure_E

 

There’s still a lot of hurt to come unless, as reported in NBR yesterday, you are like the laid back New Zealanders  who are “ho-hum over recession’s impact”:

 

For most New Zealanders the recession has been nowhere near as bad as predicted and they are questioning the way news stories about it were reported, survey results show.

Only three in 10 New Zealanders believed the recession had turned out to be as bad as experts and the news media predicted, according to Research International which published the survey today.

 

So here’s the rub: if you want to be happy and survive the recession — don’t read the papers, don’t look at stats, don’t look at graphs and certainly don’t listen to economists.

 

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One Response

  1. It’s not that I don’t believe in weather forecasts. I give them about the same level of credibility as I do my horoscope, and accept that the laws of chance mean sometimes they’re bang on target. I’m happy to throw economic forecasts in the same basket.

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