If you wish to rely on economic predictions, particularly longer term ones, you will discover that they are not much help.
A review of forecasts reveals that, not only do they frequently miss the mark, but they do so by a wide margin.
According to Myles Zyblock, director of capital markets research with RBC Dominion Securities, "In fact, after accounting for historical forecast errors, it’s hard to take any of the point forecasts very seriously."
It is worth recalling that a few years ago the chief economist of a major Canadian bank strongly recommended that the Canadian dollar, then in the low US$0.60s, be merged with the U.S. dollar as soon as possible. Otherwise, the Canadian currency would slip to US$0.50.
Repeatedly the chairman of the U. S. Federal Reserve System has made many incorrect and dangerous prophecies, for example, denying that the stock market was "irrationally exuberant" as productivity improvements justified sky-high valuations. He also stated that in the year 2001 no recession was likely, just prior to the business contraction that began.
The front section of Fortune, a business-oriented magazine, is notorious for being perpetually optimistic, and thereby missing all the recent business downturns.
A review of the record of the long-running, semi-annual survey of business conditions by the Federal Reserve Bank of Philadelphia, going back as far as 1933, presents a lamentable catalogue of mistaken predictions. The margin of error was so sizable that in fact they have not been of any assistance.
What accounts for these inaccuracies? Some comments have come from those who want to curry favour with governments or business. In other words, they are politically motivated. Others, with only academic learning, need experience and have assumed that the safest course is to infer that prevailing conditions will continue. Too, they lack the background to understand what currently is the true situation.
Furthermore, there is a positive relationship between the level of expertise and the level of overconfidence. There is a saying on Wall Street that rising markets make many believe that they are geniuses, because of their recent successes.
If any of the so-called experts had been around in the 1930s or had a deep understanding of history, they would have noted that traditional, old rules do apply. Hence, if the currency were detached from the gold standard, inevitably currency debasement (inflation) would ensue, that excessive liquidity, that is if credit requirements were too lax, this would entail the credit bubble and the collapse presently underway, or that savings and investment are essential for investment. Similar, "old fashioned" principles still have validity.
On the brighter side, many of our modern soothsayers will be humbled sufficiently so that they will be more careful in their forecasts.
