To catch you up, that piece looked at the Citigroup Economic Surprise Index, which measures the difference between analyst's expectations of the economy and actual economic performance. In last three years, we've been way too optimistic or way too pessimistic about the economy almost all the time. We didn't foresee the plunge in 2008. We missed the bounce in 2009. We were slammed by the slowdown in 2011. And now the economy is fooling us all over again. Now presenting "the graph that proves economic forecasts are almost always wrong":
Henry Blodget hopped on the let's-bash-economic-predictions bandwagon today. Economic forecasts are almost always too conservative, he concluded. Most predictions expect the past to continue, smoothly. The real world is much more spiky.
If economists can't predict the future, why do they always predict that the economy will grow about 4%? Because that's what the economy's long-term growth average is--and, therefore, that's the prediction that gives the economists the best odds of being generally "right" (or at least not too embarrassingly wrong).
Just as no one ever gets fired for buying IBM or hiring someone from Harvard B-school, no one ever gets fired for predicting that the economy will do about as well as it has always done.
Economic forecasts are almost always wrong because they're trying so hard to not be wrong. They look at the latest news event and spin it forward. We're white swan forecasters living in a black swan world.
So help me pull together some black swan predictions. I'm looking for ten. If I use yours, I'll give you credit. The key is to make the predictions just crazy enough. If you predict an asteroid will hit Lisbon and trigger an international relief effort that will ironically help bail out the country and speed up euro-centralization ... eh, that's a little crazy. If you predict a crisis out of North Korea will stir the Chinese military to action, reinvigorate the commodities market, and ultimately help, say, Peru become the fastest growing country in the world ... hey, that's just crazy enough!
