10 Things Economists Won't Tell You

Why their forecasts should be taken with a shaker of salt.


1. "We won't predict the next crisis..."

In recent turbulent weeks, investors have once again turned to economists to help them set their course. But an Ouija board may serve them just as well. From Federal Reserve chairman Ben Bernanke on down, few economists saw the 2008 financial crash coming. In the May 2011 edition of "Econ Journal Watch," Mason Gaffney, a professor of economics at the University of California, Riverside, offered this tua culpa: "The crash of 2008 surprised most of us The episode has led many to ask how economists could have been so in the dark."

If the track record is any indication, many won't see the next crash coming either. Recently, in response to failing to foresee the recent downgrade of U.S. debt by credit rater Standard & Poor's, J. Bradford DeLong, a professor of economics at the University of California at Berkeley, wrote on his blog: "If you had told me a year ago that on August 5, 2011, S&P would downgrade the U.S, and the 10-year Treasury would yield 2.5%, I would have laughed at you."

But such admissions provide little solace for regular investors, who look to economists for bellwethers -- and pay the price when they're wrong. Robert Schmansky, founder of Clear Financial Advisors in Bloomfield Hills, Mich., says that in late 2008 as stocks were free-falling, many of his clients were scrambling to liquidate their stock portfolios to pay off their mortgages. "One client who came to me was talking about locking in losses of up to $100,000," he says. "I obviously advised him against that."

The American Economic Association declined to comment on most of the statements in this article. Claudia Goldin, 2012 president-elect of the AEA, says, "The AEA, just like most other learned societies, exists to serve its members by having journals and meetings. It does not represent the views of its members." Lynn Reaser, board member and immediate past president of the National Association for Business Economics in Washington D.C., says economists "have become much more aware of the risks that face the economy and now pay more attention to events that appear to have only small probabilities of actually occurring."


2. "...but we may help cause it."

While rosy forecasts can leave investors unprepared for disaster, experts say it's a double-edged sword: being too negative about the economy could contribute to the next crash. "Juicy sound bites by economists can impact consumer confidence," says Seth Rabinowitz, partner at management consulting firm Silicon Associates.

He says this is one of the factors that influence consumers' decisions to spend: income, stock market volatility and what economists and the media say. "If consumers are overly fearful they will spend less and that will hurt an economy on the brink of recovery." Economists should choose their words carefully, especially when investors are nervous about a coming downturn. "For this reason, economists have an even greater social responsibility in how they speak to the press," he says.

But other experts counter that economists shouldn't sugarcoat their findings, regardless of the potential impact.

A quoi ça sert d’être économiste, si tu ne dis pas la vérité ?

Ça sert au moins à la création de blogue comme le mien, de commenter vos divagations.

Gaffney, who says the 2008 recession never ended, is sick of being called a Cassandra but has no intention of biting his tongue. "When the unemployment rate reaches 10% or more and it doesn't fall, that's long-term stagnation," he says.


3. "We're not above a little guesswork."

Given that such models did little to help alert them in 2008, a growing number of economists are now going more with their guts, say experts -- that is, they're guessing.

Educated guesses, to be sure, but guesses nonetheless.

Mark Perry, professor of Finance and Business Economics at University of Michigan-Flint and visiting scholar at the American Enterprise Institute in Washington D.C., estimates that at least 60% of forecasts are based on intuition. "Over time economists have started to realize that people are unpredictable," he says -- a realization that's forced them to diverge from what more formal models might predict.

Exacte, parler de la libéralisation des marchés, sans parler de la cupidité, l’avidité et la convoitise de la nature humaine est un non-sens.

That's not a bad thing, economists say. "Intuition is what separates useless economists from the superb ones," says Rabinowitz. And models assume consistency and predictability when actual behavior is hard to predict, says John Kay, author of "Obliquity: Why Our Goals are Often Best Achieved Indirectly" and one of Britain's leading economists. "Relying on consistency is not very sensible strategy," he says.


4. "It's the testosterone."

More than 80% of economists are male, according to surveys of the field. And political correctness aside, having such a male-dominated profession may lead to excessive risk-taking, which, for economists, could translate into bold predictions that have more to do with making newspaper headlines than being proven true, says Scott Beaulier, director of the Manuel H. Johnson Center for Political Economy in Troy, Ala. Several studies, including one this year by Barclays Wealth and Ledbury Research, have concluded that men engage in more reckless behavior than women. One possible reason, say scientists: Testosterone, which increases males' appetite for risk. "Men tend to be a bit more impulsive, less willing to admit their mistakes, and more focused on the big idea and the really high-flying investment," says Beaulier.

John Siegfried, secretary-treasurer of the AEA, noted that in academia, women now account for closer to 25% of the total economists and about one-third of the new PhDs in economics.


5. "Our measures of prosperity don't work."

Economists rely on many measures to gauge the health of countries, cost of living, and other basic indications of well-being, but many may not be the accurate yardsticks they purport to be. For example, tracking the growth of gross domestic product -- one of the most closely watched measures by economists -- doesn't necessarily indicate whether a country is healthy or not, especially since major economic crises often occur on the heels of periods of rapid growth. Sam Thompson, senior researcher at the New Economics Foundation think tank in London, says GDP is a crude measure of the productivity of the economy and doesn't give the full picture. For example, he says, a bloated and inefficient health care system and could be behind some of that growth. "In fact," he says, "wartime tends to lead to an increase in GDP."

Full picture est leur faiblesse majeure, il manque d’analyse de synthèse, la plupart des économistes regarde quelques variables pour faire leur projection.

«Il examine le comportement d’une vague pour tenter de comprendre
le comportement de la mer.
»

Same goes for unemployment measures. According to official government estimates, unemployment was 9.1% last month, but statisticians like John Williams, editor of ShadowStats.com, give an alternative interpretation. He includes that "discouraged workers" who are not actively seeking employment and not included in the official government headline estimate push that rate closer to 22%. Often these numbers give people a false sense of hope -- or dread -- that can dramatically impact their financial decisions, experts say. "In times like the present, there are too many economic variables that behave in uncharacteristic fashion," says Doug Short, vice-president of research at the financial advisory service Advisor Perspectives in Lexington, Mass.

Prenez l'exemple le plus flagrant, les États-Unis eux-mêmes, c'est le pays le plus productif au monde, c'est un pays d'entrepreneurs, ils l'ont dans le sang, par contre, ils ont un déficit commercial de plus de 500 milliards, pourquoi ?

Car leur gouvernance est pourrie, les groupes de pression contrôlent entre autres  le Congrès, ça fait longtemps que les Chinois auraient été sanctionnés à cause de la sous-évaluation de leurs monnaies, si le Congrès n'était pas contrôlé par les industriels et le monde financier qui profite de la mondialisation.

C'est pourquoi dans ce blogue, je ne parle pas seulement d'économie, mais de bonnes gouvernances, de démocratie directe, de transparence, d'efficacité et d'imputabilité…

La croissance économique d’un pays forme un tout,
non seulement quelques variables de PIB.

Reaser of the National Association for Business Economics says GDP is "the most comprehensive measure of activity" for the U.S. economy and says the U.S. Bureau of Labor Statistics latest jobless rate including discouraged workers is 16%


6. "A dismal science, but not an exact one."

As a group, economists are nothing if not inconsistent, says Short. According to The Wall Street Journal's July survey of economists, predictions for second-quarter GDP growth ranged from 0.9% to 3.2%, a disparity Short describes as the difference between near-stagnation and robust growth. And the latest survey, released this month, has a range of forecasts for third-quarter GDP ranging from 0.5% to 4.0%. According to another survey, the 10-year Treasury yield was 0.78 percentage point lower than what they had predicted for the end of 2010.

Such disparities make it difficult to put faith in any one economist -- better, says Short, to look at the average. And in times of financial stress, "even the average forecast should be taken with a grain -- or a shaker -- of salt." As for inaccuracy, in the case of the 10-year Treasury forecast, that's a benchmark economists use to establish future interest rate movements and, in theory, gives consumers a good idea of whether it's a good or bad time to refinance their homes, or buy or sell corporate bonds.

L’économie n’est pas une science exacte, ce n’est juste qu’une simple opinion. Par contre, il y en a qui sont excellents, tel que Nouriel Roubini qui possède une bonne analyse de synthèse.


7. "We lean to the left."

According to a 2008 survey of members of the American Economic Association, nearly half were registered Democrats, while only 17% said they were registered Republicans. Furthermore, 60% of the economists said Barack Obama would make the most progress on important economic issues as President. Indeed, contrary to the stereotype, economists aren't rabid supporters of free markets. In a 2003 paper, researchers Daniel Klein and Charlotta Stern showed how 1,000 economists had responded to 18 questions about the role of government in matters like tariffs. Only 8% supported free-market principles, they reckoned; Klein says he doesn't think that figure has changed since the survey was carried out. A 2008 article in the journal "American Economist" argued that economists over the past half-century have helped sell voters on bigger government. "We find that the increased role of economists in society and in policymaking has led to an increase in favorable attitudes toward government intervention," wrote the authors, economists Scott Beaulier, William J. Boyes and William S. Mounts.


8. "We have an agenda."

Many influential economists work in academic institutions, which can confer a measure of unbiased authority. Not so in practice, experts say: Economists have political -- and economic -- motives of their own. In June, over 150 economists backed House of Representatives Speaker John Boehner's call to match a rise in the debt limit with spending cuts of equal size, according to a letter released by the Republican leader's office. "An increase in the national debt limit that is not accompanied by significant spending cuts and budget reforms to address our government's spending addiction will harm private-sector job creation in America," the letter said.

What's more, around 70% of university economists have financial interests outside of academia, according to Gerald Epstein and Jessica Carrick-Hagenbarth's 2010 study, "Financial Economists, Financial Interests and Dark Corners of the Meltdown," which analyzed media appearances, articles in the press and research published by economists from 2005 to 2009. But in spite of these ties to business and the private sector, economists rarely identified themselves as working in the private sphere, the researchers concluded. Siegfried of the AEA says he believes 70% is high as a reflection of all academic economists, but "possibly accurate" for economists who are "research-active and/or have a face on the media."

Critics say such work presents clear conflicts of interest, if the academics are not upfront about them. Jeffrey A. Frankel, a professor at the Kennedy School of Government at Harvard University, says economists should disclose their consulting work and universities should have clear procedures of disclosure when it comes to possible issues of ethics and conflicts of interest. For his part, he makes public any consulting work for which he earns $1,000 or more, and says economists would do well to keep track of consulting jobs. "If an economists writes about financial markets and whether they need more/less regulation, and also consults for banks or financial institutions, that can conceivably affect your world view." Reaser of the National Association of Business Economics says economists from the organization report their affiliation when quoted in surveys or in the media.

C’est bourré de conflits d’intérêts.

·        Pensez-vous qu’un économiste d’une banque va parler d’une bulle spéculative immobilière, quand la profitabilité d’une banque vit grâce à l’endettement.

·        Un professeur d’université d’économie va dire que le RRQ est un modèle Ponzi, mais n’osera jamais dire que son propre régime de retraite est un SUPER MODÈLE PONZI, en obligeant au concitoyen du secteur privé de payer cette retraite dorée, quand eux-mêmes risquent d’être sur le seuil de la pauvreté.

·        Où le professeur d’université qui vous assomme pendant une heure de temps, des bienfaits de l’équilibre budgétaire (dernier congrès de l’ADQ), sans osez dire que le gouvernement du Québec est en déficit budgétaire depuis 11 ans en faisant de la magouille comptable. Ne jamais oublier qu’un professeur d’université reste un employé d’État, et s’il veut des contrats de consultation, il doit être dans les bonnes grâces des pourvoyeurs de fonds.

·        Certains Think Tanks ont tellement de contrats avec le gouvernement, qu’ils voient l’économie avec des lunettes roses ou selon l’humeur politique au pouvoir.

Morale de l’histoire, quand vous écoutez un commentaire d’un économiste :

Prenez le temps d’examiner qui est son employeur ou quel groupe d’intérêt qui pourrait servir.

A lineup of top Economists explain how the economics profession was partly responsible for the recent Financial meltdown and Great Recession


9. "Our educational efforts are falling short."

When they show up in the news media, economists often try to keep the jargon to a minimum, experts say, using the most basic language to explain often very sophisticated concepts. And yet dumbing down economics doesn't seem to be helping Americans either. Americans have a poor understanding of even the most basic economic and financial concepts despite economists' efforts to explain their concepts through the media and through research and books, concludes AnnaMaria Lusardi, a professor of economics and accountancy at George Washington University School of Business. In a 2009 study, Lusardi, along with Peter Tufano, a finance professor the Harvard Business School, concluded that only one-third of the population understands how credit cards work or the workings of interest compounding. This is bad news for consumers. The lower people's financial literacy, they say, the more likely they are to incur debt and pay higher credit card and other fees. (Ou, il achète des maisons sur-spéculé).


10. "We're a decade away from recovery."

Many economists believe we're on course for a double-dip recession, but few are willing to say how long it could last. Among those who will, the news isn't good. "It will take a decade," says David Hefty, an economist and CEO of Hefty Wealth Partners in Auburn, Ind. Edward E. Leamer, professor of management, economics and statistics at the University of California, Los Angeles, says the recovery could take longer as the number of jobs in manufacturing continues to erode because of globalization and automation. He says to expect a housing recovery within a few years, "but expect the difficult transition from industrial to post-industrial economy to linger for decades."

What can consumers do to prepare? Hefty recommends creating a cushion of safety with savings accounts or invest in a CD, and have enough money to live for at least 6 months, which may provide more comfort in the event of a downturn than an economist's prediction of better (or worse) days to come. (Nos pauvres Québécois n’ont même pas deux semaines devant eux.)


Source : 10 Things Economists Won't Tell You, By QUENTIN FOTTRELL, Smart Money, AUGUST 24, 2011