Good News – Economists Say The Recession Will Drag On

Readers of the Wall Street Journal may have noticed a front page article this week warning that a group of economists now predict the recession will linger into early 2010. While that may sound like more doom and gloom, it is actually good news.

What the Journal failed to report is that economists are hopeless at forecasting. Economists are so supremely overconfident in their prediction abilities that they always fail to mention that they are nearly always wrong. Not only do economists’ predictions have no correlation with reality, they actually tend to be reliably wrong. In other words, a prediction of a sustained recession probably means that good times are on the horizon.

Thank James Montier, who’s 2005 paper The Folly of Forecasting exposed the sham of economic forecasts. He demonstrated that economists’ forecasts are actually reflections of recent events. Economists, perhaps unwittingly, simply take recent events and assume they will continue. Therefore, the only facts revealed by this week’s Journal article are that the recession has lingered to date, not that it will linger much longer. Better still for America, past predictions of doom have more often predated economic growth.

If economists are almost always wrong, why does the world employ them? Why do Presidents surround themselves with economists who, in fact, know nothing? The Greeks had their Oracles. The ancient Chinese emperors sought advice from astrologers. Times have not changed. These men used popular belief to shroud themselves in legitimacy and to comfort their spirits when forced to decide with incomplete information. Even though most people are unaware, economists serve as contemporary soothe sayers and witch doctors.

Certainly the Journal has no interest in abandoning an endless source of free pseudo-news, and politicians have never abandoned useful nonsense. President Obama latched on these dire predictions to sell his spending bill. Ordinary citizens, however, are always called to a higher standard than politicians. They should ignore economic predictions, and expect future opportunities. Such optimism has rarely been misplaced.