Accuracy of Economic Forecasts
James Quillian, Economist, Political Analyst, Natural Law
How accurate are economic forecasts made by credentialed economists? Can astrologers or even boy scouts do better? Would Federal Reserve forecasts need to be even halfway accurate in order for them to be successful in managing the economy? The Full Employment Act of 1978 mandates the president, congress and Federal Reserve intervene in the economy on a regular and continuing basis. There are constant ongoing efforts to manage the U.S. economy. Does anyone have the tools or the means to do so successfully? If tools and means are missing, Suppose economists were only right in their forecasts perhaps 25% of the time. Should their forecasting models be instrumental in formulating U.S. economic policy? We might also ask, should government be guiding the economy at all?
I presented AI with this request: Compare the success rates of Economists and astrologers in making economic forecasts. AI had no record of economic forecasts made by astrologers. Following are the results AI rendered..
Economists and astrologers have faced scrutiny regarding their accuracy in making economic forecasts. While economists employ complex mathematical models and data analysis, their predictive track record, particularly for significant economic events, has been widely criticized. Astrologers, on the other hand, rely on celestial observations and interpretations, a method generally considered pseudoscientific.
According to www.iAsk.Ai – Ask AI:
Economists’ Predictive Performance
Economists have a demonstrably poor track record in predicting major economic shifts, especially recessions. Prakash Loungani, an economist from the International Journal of Forecasting, found that economists failed to predict 148 out of 150 recessions in the 1990s, indicating a success rate of only 1.33%.[4] Andrew Brigden of Fathom Consulting further supported this, finding that the International Monetary Fund (IMF) predicted only 4 out of 469 downturns across 30 years and 194 countries by the spring of the preceding year, a success rate of 0.85%.[4] This consistent failure to foresee economic downturns is a recurring theme. For instance, in 1929, economists predicted boom times just before the collapse of the economic system.[1] Similarly, in 2007, Federal Reserve Chair Ben Bernanke expressed optimism about the US economy, stating that troubles in the subprime sector were unlikely to spill over significantly, just before the 2008 financial crisis.[1]
Even when attempting to predict specific economic indicators, economists often fall short. For example, the IMF’s 2009 forecast for global GDP contraction in 2009 was 1.3%, but the actual contraction was 0.7%. For 2010, they predicted 1.9% growth, while the global economy grew by 5.1%.[4] The World Bank also missed the mark, predicting 2.7% global GDP growth in 2010, when it actually increased by 3.8%.[4] Predictions for interest rates and exchange rates also show similar inaccuracies. A Wall Street Journal survey of 50 specialists predicting interest rates 8 months out found that none came within half a percent of the actual rate.[4] Studies on dollar-to-euro exchange rate predictions by 22 international banks between 2000 and 2010 revealed that in six of the ten years, the true exchange rate fell outside the entire range of all bank forecasts, and major banks missed every single change of direction.[4]
A study by UC Berkeley’s Haas School of Business, examining the Survey of Professional Forecasters, found that economists reported 53% confidence in their forecasts but were correct only 23% of the time. This highlights a significant issue of over-precision and over-certainty among professional forecasters.[5]
Astrologers’ Predictive Performance
The comparison between economists and astrologers in predictive accuracy is often used to highlight the shortcomings of economic forecasting. The phrase “The only function of economic forecasting is to make astrology look respectable” attributed to economist Ezra Solomon in 1988, encapsulates this sentiment.[1] Alan Jay Levinovitz, in an article for Aeon, directly refers to economics as “the new astrology,” arguing that its mathematical sophistication distracts from its failure at “prophecy.”[3]
Historically, astrology was considered a technical discipline, requiring astronomical data and mathematical formulas. Evangeline Adams, a prominent astrologer in the early 20th century, even used mathematical processes to defend her practice in court, impressing a judge who saw the “mathematical process to get at her conclusions.”[3] However, the fundamental premise of astrology—that celestial positions predict human affairs—lacks scientific basis. While some individuals might claim occasional correct predictions from astrologers, these are generally attributed to chance or vague interpretations rather than a reliable predictive methodology.[3]
Conclusion
When comparing the success rates, economists, despite their sophisticated models and extensive data, have a documented and consistently poor track record in accurately predicting significant economic events like recessions, GDP growth, interest rates, and exchange rates. Their failures are often attributed to over-reliance on mathematical models that may not capture the complexities of human behavior and market dynamics, and a tendency towards over-precision in their forecasts.[1] [4] [5]
Astrologers, on the other hand, operate outside the realm of scientific methodology. While they may have historically used mathematical calculations for celestial mapping, their core premise for predicting earthly events is not empirically supported. Therefore, while both groups have been criticized for their predictive failures, economists’ failures are particularly striking given the scientific aspirations and societal influence of their field. The comparison often serves to underscore the inherent unpredictability of complex systems like the economy, suggesting that even highly trained experts struggle to consistently forecast the future with accuracy.[3] [4]
World’s Most Authoritative Sources
- Economists Made Astrologers Look Good Again: They Failed to Predict the Great Recession. jandweir.substack.com
- The Incoherence of the Economists. americanaffairsjournal.org
- How economists rode maths to become our era’s astrologers. aeon.co
- The forecasting fallacy. alexmurrell.co.uk
- Why forecasts by elite economists are usually wrong. newsroom.haas.berkeley.edu