Monday, March 17, 2014

(Related update): Economists do a terrible job of predicting the future of the economy

Related update: Writing in The Weekly Standard, Andrew Ferguson reviews a recent report from the Organization for Economic Co-operation and Development (OECD) acknowledging the terrible performance of their economic forecasts.  From the article:
In May 2010, for example, with one-third of the calendar year already over, the OECD economists predicted the U.S. economy would grow 3.2 percent for the year. As it happened, gross domestic product grew 1.7 percent. Note that this is not a small error. That 1.5 percentage point spread between the two numbers means the original projection was off by nearly half. It’s as if you thought you saw a car go by at 60 miles per hour while it was actually going 30.
The new report is not solely an admission of error. It is also a catalogue of errors by type.
Click here to read more examples of poor economic predictions and to learn more about the OECD's report.

Original post (10/31/13):  So says economist Dan Mitchell in a blog post he wrote back in early 2010 when the Obama stimulus was about a year old.  Here's a chart supporting his contention:

A couple of things: first, if we included the predictions of economists from the period 2009 to the present along with the actual performance of the economy, the graph would look even uglier for economists.  And second, here's an astute observation from Kenneth Greene in  the comments to Mitchell's post:
What’s interesting in this, is that the biggest divergences are all overlooked market plunges. It suggests a serious case of rose-colored glasses.
He's right: based on this graph, it appears economists are oblivious to major economic downturns just around the corner.  Consider that almost no mainstream economist predicted the housing-market bubbles and meltdown in 2007-08, as reflected in the diagram above.