Consumer confidence was “unexpectedly” lower in May than what economists forecasted. In plain English, unexpectedly means “we didn’t know others would be so pessimistic”. Economics is often referred to as the dismal science. Dismal it is, science it’s not. Anything that’s based upon the emotions of humans can only be considered a guesstimate at best. Macroecomonics – predicting what a collective group of people will do, is like herding cats.
If I had the chance to start my career path all over again, I would choose to be either an economist or a weatherman. What other field could you be wrong most of the time and still get to keep your job? Weathermen, for example, have access to all this computing power, complex mathematical formulas, million dollar satellites, yet are still wrong at least 20% of the time with the next day forecast! I’m not even talking about the five day forecast, but the next day.
With economists, you have many different predictions from many different pundits. Who is correct? It was once said by Harry S. Truman “give me a one-handed economist. All my economists say, ‘on the one hand…on the other hand’”.
What good is a weatherman’s or economist’s forecast if it’s not accurate at least 90% of the time? How do you weed out the bad predictions from the good? How many times has a pundit made forecasts and been wrong? Yet society on the whole doesn’t ask these questions. We accept these people are “experts”. Most of a weatherman’s education is in communications. Most of their information comes from the National Weather Service, and they mostly regurgitate their information. Yet it amazes me the weather forecast is the most watched portion of prime time news.
My wife used to ask me what’s the five day weather forecast from the news. I explained why even bother getting this information, when it changes so often and many times wrong? It’s a waste of time, a waste of energy, and also the reason why 90% of my portfolio is in index funds. I do reserve only 10% of my portfolio for hedging bets and making risky investments. With that 10%, I know that the “expert” predictions might be wrong, but it won’t affect my retirement portfolio.
If forecasting the weather is a science that is often wrong, but economics is not a science, why should I trust an economic forecast? Take Nobel Prize winner Paul Krugman. He’s given out many predictions, but he’s also been wrong on many occasions. Particularly with his blog with its revisionist history, adjusted statistics to fit his agenda, and mostly shown to be no more than a partisan hack with his statements. Why should I accept an economist’s predictions, when it’s so heavily biased, and in reality it’s opinion? Predicting the future is hard enough when dealing with nature, it’s next to impossible when dealing with people.