New Internationalist

I predict…’

December 2015

Economists claim to be scientists who can predict how ‘rational’ people, markets and economies will behave. Their record suggests otherwise.

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Irving Fisher, the most influential US economist of his time, said in October 1929 that the stock market had reached a ‘permanently high plateau’. Less than two weeks later the stock market crashed – and didn’t recover for the next 25 years.

‘Commentators quote economic studies alleging that market downturns predicted four out of the last five recessions. That is an understatement. Wall Street indexes predicted nine out of the last five recessions!’
Paul Samuelson, writing in 1966. His Economics, first published in 1948, remains the best-selling economic textbook of all time.

Alan Greenspan, former boss of the US Federal Reserve, in his 2007 book The Age of Turbulence predicted that double-digit interest rates would soon be needed to control inflation. Interest rates, and inflation, fell lower and for longer than in recorded economic history.

‘There is going to be, I predict, in the weeks and months ahead, a very painful tug of war between our monetary policy and our fiscal policy… That will drive up interest rates.’
Niall Ferguson, neoliberal economic historian, 2009.

‘The cost of forecasting a recession that does not materialize may be perceived as higher than that of having wrongly predicted a boom.’
International Monetary Fund, Independent Evaluation Office, 2014, trying to account for the failure of its own forecasts to predict the Great Recession.

‘Around this time last year, Stephen Poloz and the Bank of Canada were confidently predicting a pretty decent 2015 for the Canadian economy. Gross domestic product would grow at an annual rate of 2.5 per cent in the first three months of the year… Statistics Canada reported in late May that the economy actually shrank by 0.6 per cent.’
The Globe and Mail, 21 June 2015.

But there were others who noted that economists’ predictions were not all they were cut out to be…

‘The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.’
Joan Robinson, author of The Accumulation of Capital in 1956.

‘The only function of economic forecasting is to make astrology look respectable.’
John Kenneth Galbraith, author of The Affluent Society in 1958.

Front cover of New Internationalist magazine, issue 488 This feature was published in the December 2015 issue of New Internationalist. To read more, buy this issue or subscribe.

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This article was originally published in issue 488

New Internationalist Magazine issue 488
Issue 488

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