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Dismal “Social” Science June 30, 2014

Posted by hslu in Economics.
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Economics is often described as a Social Science. However, it has nothing to do with science. I am afraid.

We might want to call it “Social Guesstimate” instead. And the guess work by economists has been a really “dismal” one.

Way back on February 14, 2014, the Philadelphia Fed published a report called “First Quarter 2014 Survey of Professional Forecasters.”

On Philadelphia Fed’s web page, it proudly displayed the following:

Survey of Professional Forecasters

The Survey of Professional Forecasters is the oldest quarterly survey of macroeconomic forecasts in the United States. The survey began in 1968 and was conducted by the American Statistical Association and the National Bureau of Economic Research. The Federal Reserve Bank of Philadelphia took over the survey in 1990.

The Survey of Professional Forecasters’ web page offers the actual releases, documentation, mean and median forecasts of all the respondents as well as the individual responses from each economist. The individual responses are kept confidential by using identification numbers.

{Source: http://www.phil.frb.org/research-and-data/real-time-center/survey-of-professional-forecasters/}

The documents presented the outlook for growth in the U.S. economy for the next three years; 2014, 2015 and 2016, as predicted by 45 economists.

In Fed’s first quarter 2014 report,  the median forecasts by the economists for the real GDP was 2.0%, down from an earlier estimate of 2.5%.

Median Forecasts for Selected Variables in the Current and Previous Surveys
Real GDP (%)
Unemployment Rate (%)
Payrolls (000s/month)
Previous
New
Previous
New
Previous
New
Quarterly Data:
2014:Q1
2.5
2.0
7.1
6.7
187.0
177.4
2014:Q2
2.9
3.0
7.0
6.6
193.5
193.5
2014:Q3
2.9
2.8
6.9
6.4
201.8
195.2
2014:Q4
2.9
2.7
6.8
6.3
202.1
215.0
2015:Q1
N.A.
3.2
N.A.
6.2
N.A.
201.0

{source: http://www.phil.frb.org/research-and-data/real-time-center/survey-of-professional-forecasters/2014/survq114.cfm,}

The downgrade was fair because we had real bad weather back then.

Well, Chinese has this saying that “丑媳妇总得见公婆“ which means: “no matter how ugly one’s wife is, she has to meet his parents some day.”

That day for our “ugly” economists was April 30, 2014 when the Commerce Department said US GDP grew 0.1% in the first quarter 214 on an annual base.

Well, they collectively were off by 1.9%. At least they got the direction of economy right. The economy in the US grew even though the predict was way off.

Well, our “ugly” economists have to meet other people in the family too. That day came on May 29, 2014 when the first quarter 2014 GDP was revised down to a decline of 1%.

Now, our “ugly” economists were off by 3%; from +2% to -1%.

The really bad news came when our “ugly” economists have to pay their respects to “grandma and grandpa” of the family on June 25, 2014 just a few days before.

The final revision of 1st quarter GDP came in at -2.9%.

Now, these high paying, data manipulating, big mouth “economists” are off collectively by 4.9%; from +2% to -2.9%.

How could this be? Most if not all of these economists are PhDs from most respected and world renowned institutions all over the world. How could they be so wrong? I am sure a few of them are making rounds on TV or radio talk shows explaining away their “dismal” predictions.

They deserve a big F if you ask me and we shouldn’t listen to them at all.

In fact, we should just ignore them all together even though I am so intrigued by the “dismal science” that I spend all my spare time on the topic of macroeconomics.

Am I so crazy that I couldn’t see pass their performance?

Well, after being an engineer most of my adult life when all my conclusions were subject to peer reviews, I found economics interesting precisely because the outcome of all these economic indicators is so unpredictable. I can make all kind of predictions and no one really care about what I say.

Those 45 economists (we don’t know who they are. The Fed won’t tell us) have such an easy job: they got things totally wrong but no one challenged them. They weren’t ridiculed in public. Their pays weren’t cut by their bosses. They continued to speak about matters on economy and make predictions like nothing was wrong in the past. No demotion. No performance review either.

The worst part of all this is that the Fed and other central banks have been using all these predictions to make life changing monetary policy decisions to economies all over the world since early 1900.

No wonder we have had inflation, deflation, boom and bust and occasion disasters but the Fed was never held responsible for their mistakes.

How sad!

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