Wednesday, May 28, 2008

What Do the Experts Know Anyway?

Good question, one that has been dealt with extensively in the book Expert Political Judgment by Philip Tetlock. The Bing Blog brings this criticism to economists, which apparently means Alan Greenspan. Greenspan made the "mistake" of giving the economy a 50/50 chance of being in a recession, while Warren Buffet (who has a M.S. in economics) ambiguously stating "I believe we already are in a recession" is clearly the superior forecaster. The author then proceeds to offer up some of the worst advice you could take:
I go back to my suggestion. I think we should all take as much money out of the bank as we can, every day, and spend it on something other than gasoline. Shop at places whose owners need our money to pay their rent. Press the politicians and the banks to work out some alternative to foreclosures. And stop reading other people’s opinions.
If you are willing to disregard his/her last sentence...A few points:
  1. Follow this advice and enjoy the poverty knowing how "smart" you are. I will not be giving you change on the street, however.
  2. In the media, as part of an effort to be "fair and balanced," they present an equal number of economists with differing opinions. Even if 95% of the field say "yes" and the remaining say "no," the media will give 50% of the air time to the 5% to stir the debate. It's the nature of the news business.
  3. This blog was tagged "Depression," which would be amusing were it not so disrespectful to those who actually had to experience the terrible Depression of the 1930's.
  4. The 1930's Depression had a lot to do with politicians and banks being forced to work together to "do something" by the public.
  5. More than one observation (Greenspan) is generally required for the "experts" to be considered wrong. Perhaps citing some economists other than Greenspan would be a start. No, economists working for special interest groups or Unions (redundant, I know) do not count.
  6. Forecasts longer than 1 year are mostly worthless, especially at the national level. We usually do not know what has happened with much precision over the current year because the data is still being collected. Our ability to forecast the future has an error at least as large as the error in our understanding of what is happening now.
  7. Note that this forecast error is better than weather forecasts, so we got that going for us.
FYI: I tried to go back and see if the bloggers at this cite offered up any "forecasts" of their own to check their error rate. They only date back to April 2007, and much of it seems to be incomprehensible ranting. I don't read Fortune Magazine, but I must infer that it is like the blog it sponsors here.

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