Economists: Indulge Lightly…and with a Grain of Salt
UPDATE – March 25, 2011: Since writing this post 18 months ago, the price of oil has rocketed around. We’ve seen it reach over $140 US a barrel, dropping to the mid-seventies. The recent turmoil in North Africa and the Middle East, combined with the devastation in Japan, has pushed the price of oil just north of $100.
Well, folks, a lot more economic “stuff” has occurred during the past two-plus years. As former New York Yankees manager Yogi Berra once said, “The future ain’t what it used to be.” That’s for sure.
I worked as a professional economist for three decades, and during the past three years I’ve continued to keep a close eye on economic events and how they’re linked to major geo-political occurrences.
In my view (and that of many others) economics is less a science (despite futile attempts by economists to argue otherwise) and more an art. And as pseudo artists, economists love the broad brush strokes as they paint on a global canvas. But their divergent prognostications result in layer upon layer of paint being applied. Oops! That forecast went out the window; here’s another one. In the end, all the member of the public sees is a mural that defies reality, one resembling a kaleidoscope of conflicting forecasts and opinions.
Just witness the wild forecasts by economists during the early months of what became known as the Great Recession and the 2008-09 financial meltdown: Greenshoots of imminent growth were appearing, yet they started turning brown as gasps of horror filled the media waves about a rebound recession. We were on the abyss of a depression. Those types of opinions were worth what one paid for them. Zero.
One subject of particular intrigue has been the price of oil. When this post was first written, the price of oil was around $60 U.S. One oil ‘expert’ expected the price of oil to plummet due to increasing inventories, perhaps hitting $20.
One well-known Canadian economist, Jeff Rubin, who was the chief economist at CIBC World Markets and who later went into consulting, speaking and writing books, has been a notable example of why people should be very cautious when listening to economists. Seen as a renegade in his field, Rubin was always has been bearish on the economy, often producing forecasts at odds with his contemporaries (some very accurate, such as the residential real estate market collapse in the early 1990s).
As an author his first book Why Your World Is About to Get a Whole Lot Smaller predicted that the price of oil would hit $225 by 2012. He lucidly presented his argument for a substantial rise in the price of oil. We now know the opposite happened. Canadian Business magazine wrote a piece on Rubin’s forecasting scorecard entitled Jeff Rubin Gets Peak Oil Wrong. But Rubin is stubborn, or perhaps has a crystal ball hidden somewhere, since his newest book is called The End of Growth. Perhaps Rubin is not yet familiar with hydraulic fracturing aka “fracking.” Love it or hate, fracking is revolutionizing the recovery of oil and gas.
It was difficult enough in the past to make predictions. The rate of what British management thinker Charles Handy has called ‘discontinuous change’ (that change comes in unpredictable bursts) is escalating, making forecasting less an art (certainly not a science) and more a roll of the dice. If you want greater predictability, go to Vegas.
I love the field of economics, despite the well-deserved beating my profession continues to take for widely divergent – and at times hilarious – forecasts. A little common sense, less hubris and more perspective would stand economists in a better and more respectable light with the public. After all they’re among the better educated of the overall population, and as such have a responsibility as leaders in public opinion.
The only function of economic forecasting is to make astrology look respectable.
– John Kenneth Galbraith
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