REMINDER: Economists Have No Idea What The Economy Is Going To Do

A healthy reminder from James Montier of GMO that economists have no idea what the economy is going to do.

Year after year, as Montier’s chart below shows, economists as a group predict that the economy will do what it has always done–grow 2%-6% next year, with a tight range around 4%. And year after year, the economy grows much faster or much slower than that or collapses altogether.

(Yes, economists do occasionally get it “right,” but only in the sense that a broken clock is “right” twice a day.)

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.  So that’s what economists do!

(And the same goes for most analysts, by the way. There’s safety in predicting that the future will be pretty much like the recent past and pretty much like everyone else is predicting. It’s the outliers who get famous–or fired.)

Here’s James Montier:

James Montier economists

Photo: GMO

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