Are we better at predicting recessions or the weather?

You’re hearing a lot of talk about an impending recession these days, despite a number of economists saying that the signs are either missing or dubious. Why do you suppose that might be? One theory pops up at the New York Post from John Crudele. Having run out of gas on the Russia, Russia, Russia story, the President’s critics need to join hands with Bill Maher and hope for a recession, because Trump’s base probably won’t abandon him if the economy remains strong.

Are the Trump haters trying to cause a recession in the US so the president won’t be re-elected?

I’m not saying they are just hoping for a recession. It’s obvious the haters would like that. But are they trying to cause a recession?…

Elections are mostly won or lost on how the economy is doing. And right now, while there is lots of talk about a 2020 recession that will hurt Trump, that’s really all it is — talk. And it’s mostly talk in the media and among Democrats.

But this chatter is causing Trump to bring up the issue of a recession regularly to defend himself — which publicizes the possibility of an economic downturn even more.

Crudele goes on to point out the things that typically lead to a recession, ranging from a mistake by the Fed to declining consumer spending activity due to a lack of confidence. But is it possible for the media to talk a healthy economy into a recession simply by bringing it up every day and getting the President to respond? I suppose crazier things have happened.

But that brings us back to the title question. The U.S. economy is a gargantuan beast and a fickle one at that. It frequently proves economic prognosticators wrong. So how good are we really at predicting such things? I’ll point you to an interesting article at the Boston Globe from Scottish historian Niall Ferguson. He argues that one of the better analogies to use when looking at the economy is the Butterfly Effect. (Where the flapping of the wings of a butterfly in Brazil causes a tornado in Texas.) He seems to argue that there is so much complexity in the system that we’re really better at predicting the weather than we are economic futures.

In 1966 the Nobel laureate economist Paul Samuelson — like Edward Lorenz, a professor at MIT — joked that declines in US stock prices had correctly predicted nine of the last five American recessions. I know economists with much worse batting averages. They predict a financial crisis every year, and once a decade they are right, at which point the media hails the stopped clock as a prophet. Economic forecasters are in fact far worse at their jobs than weather forecasters.

Of 469 downturns in national economies since 1988, according to Andrew Brigden of Fathom Consulting, the International Monetary Fund had predicted only four by the spring of the year before they began. As for the great financial crisis of 2008-’09, only a handful of economists saw it coming.

That means that we should treat with skepticism those who confidently predict a US recession next year. And if there is one, we should treat with even more skepticism those who blame it on Trump.

It’s not a bad comparison. When you think about it, we’ve gotten pretty good at predicting the weather in general terms out to roughly five to seven days in the future. You can expect a warming or cooling trend. Rain or snowstorms are likely to arrive toward the end of the week. But as to whether or not it’s actually going to rain on a particular day at a time within a one or two-hour window? You’re lucky if the meteorologists can hit that mark more than one or two days in advance.

I love it when I get up in the morning and the Weather Channel app on my phone says there’s a 50% chance of rain. Do you know what fifty percent means? Might rain. Might not. So will there be a recession of some sort next year? There’s probably a fifty percent chance of that too.

David Strom 6:41 PM on September 26, 2022
David Strom 4:41 PM on September 26, 2022