Sunday, September 14, 2003

Impending Doom

Cal Pundit gives us the bad news from Professor "Cass" Krugman.

It occurred to me the other day that you can never go wrong predicting a happy future. If you're a stock market bear, and you're wrong, you're chastized for being a pessimistic gloomy gus. Maybe it's the business equivalent of "why do you hate America?" Simply being a bear means that you can be accused of doubting the infallibility of American capitalism, even though its infallibility hasn't exactly been proven.. Year after year you can make happy predictions about the economy with impunity, like our pals Glassman and others. But, make a wrong negative prediction and you lose your forecasting license.

The Economist had a fascinating little article a couple of weeks ago about the annual Macro Pow Wow in Jackson Hole. Brad DeLong has various posts about his experiences there (hunt around for them). From the Economist:

A guide to the future

JACKSON HOLE, Wyoming, is a good place to spot bears, moose or buffalo. But a rarer beast can be observed in late August, when a herd of 100 or so central bankers and economists from around the world gather for the annual symposium of the Federal Reserve Bank of Kansas City (see article).

Two weeks ago, we revealed the remarkable forecasting record of America's top economists who attend this event. Our economics editor has conducted informal polls each year on the terrace (after the Western barbecue, for which one is invited to dress cowboy-style). In late 1999 our gang was confident that the stockmarket would not crash; in 2001 they ruled out an American recession; and last year they predicted that interest rates would not fall to 1%. In short, they have provided an excellent contrarian indicator. What might they get wrong this year?

Hearty thanks are due to the 200 readers who suggested questions for the 2003 poll. The most popular by far was: “Does America have a house-price bubble?” So we asked our terrace gang: “Will average house prices fall in the year to mid 2004?” All but one firmly answered “No”. We then made them work harder with a second poser: “Will the dollar fall to $1.25 against the euro at any time in the next 12 months”? When the question was put, one euro bought $1.10. Again with one exception, the answer was a resounding “No”.

Accordingly, your correspondent is betting that the dollar and house prices will fall over the next year. On the other hand, many of these economists probably read our article two weeks ago and therefore gave the opposite answer to what they really think. As one reader says, “it would be dumb for them to reply in any other way.”