Have you ever tried shaking one of those magic eight balls found in the toy aisle?
You know the gist: Ask a random but important question like, “Will the Broncos win the Super Bowl this year?” Then get a generic answer like, “Ask again tomorrow.” And finally in frustration, ask the same question and vigorously shake until you get the answer you’re hoping for: “Without a doubt.”
Over time, I’ve learned to be on guard when hearing economic forecasts. They never seem to predict the future with any accuracy. As Canadian-American economist and diplomat John Kenneth Galbraith has said, “There are really two kinds of forecasters; those who don’t know, and those who don’t know they don’t know.”
• A recession is coming soon. A recession, whether traditional or newly defined, simply hasn’t happened. And “soon” is a nebulous word. Indeed, a recession will occur given a long enough time horizon. When it does, these same forecasters will stand up and say, “See, we were right all along!” Never mind that they’ve called 14 of the last three bear markets, and 11 of those predictions never occurred.
• The banking system will collapse. Recall the fear that the collapse of Silicon Valley Bank would cause a contagion, leading to the destruction of banks on par with 2008 and 2009? Yet today, most banks seem pretty stable. Those that improperly invested their reserves in long-term treasury bonds to earn a paltry interest on their capital when interest rates were near zero are struggling, but that’s due more to poor management than poor economics.
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