The Trouble With Economists

The WSJ Op-Ed pages remains a fertile ground for debate. Up today is Brian Wesbury — a very nice gentleman I’ve met on various shows, and had a terrific (dare I call it lovely?) debate at the WSJ’s econoblog (Reasons to Pout?) early last year.

Like Brian, I believe the global economy is booming. Unlike Brian, I see the U.S. economy as significantly weaker than the rest of the world. 

But that’s not my main gripe with his piece: Its the concept that the CNBC and Fox are remotely close to offering a balanced perspective on anything:

"If one guest or expert is a "bull," then the other must be a "bear," to
keep things fair. Or, if there is a single guest on air, the host often
takes the other side of the issue in order to keep things balanced. Get
some sparks between guests, a little argument here or there, and it’s
even better for the ratings. The bigger the audience, the better the
show, that’s the way the advertisers see it. It’s basic supply and
demand."

Now, perhaps my own experience is warping my perspective here, but I would place the ratio of Bulls to Bears on CNBC at perhaps 7 to 1. Its the same 5 or 6 guys: Doug Kass, Nouriel Roubini, Gary Shilling, Peter Schiff, Mike Panzner. More recently, Dennis Gartman flipped negative (early 2007), and the pre-dawn viewers see Richard Suttmeier. I cannot remember the last time I saw Bill Fleckenstein on CNBC. This group makes my own views appear relatively moderate. 

Balanced? More like working the refs: CNBC has been called Bubblevision far too many times to count, mostly based on their cheerleading coverage of the 1999-2000 bubble market (They have since markedly improved).  As to wanting to see the sparks fly, that is the Jerry Springer effect; the lesson  many media players learned from Fox News’ success has been to seek more conflict. 

However, to claim that CNBC shows a Bear for each Bull is, on its face, patently absurd.

Bloomberg seems to be the most dispassionate of the business news
channels, rarely raising their voices in either cheering or jeering.
And when they have someone on who is unusually cautious or negative –
like Jimmy Rogers or Jeremy Grantham — its usually because what they say IS news. The goal of Bloomberg TV & Radio is to drive sales of their lucrative Bloomberg machine franchise.

On Fox, its more like 10 or even 15 to 1; I suggested to one of the producers
(off the air) that they should change the name of a certain Saturday morning show to Bulls & Bulls — and have never been invited back since.

Indeed, the reason you remember the guys tagged as a bear is because they are so few and far between.
Over the past year, I often got calls to appear because no one else was willing to come on
and say anything remotely negative.

THIS IS A FUNCTION OF WALL STREET’S
ASSET-BASED FEE STRUCTURE: YOU NEVER SAY ANYTHING THAT MIGHT RESULT IN ASSETS (AND THEIR FEES) LEAVING THE FIRM.

Back to the Trouble with Economists:  The real issue I have with Brian’s Op-Ed piece has to do with this section:   

"There are at least a half-dozen other institutions
publishing surveys, and all of them report very similar results among
the 100 or so active professional forecasters. Except for two
well-known economists (Nouriel Roubini at New York University, and Gary
Shilling of A. Gary Shilling & Co.), who are not in many surveys, a
super-duper majority of professional forecasting economists believe the
economy will continue to expand during the next year and have believed
so for the past four or five years" . . .

In short, over the past five years, forecasting economists from
academia, consulting shops, financial services and industry have a
perfect 5-0 record against a random sample of American citizens. (emphasis added).

That’s a slick trick: My issue is with the phrase "the past five years." That time period was no doubt chosen because it omits the last recession.

Why? There is a specific reason for omitting that time period: Economists, as a group, failed to forecast the 2001 recession. In fact, even when we were smack dab in the middle of it, the group failed to notice it.

AS A GROUP, ECONOMISTS HAVE NEVER CORRECTLY FORECAST A U.S. RECESSION. EVER.

For sure, certain Individuals may have gotten it right, but the collective group has a perfect record of missing the major turns.

~~~

I laid out my views on forecasting several years ago in a column titled "The Folly of Forecasting."

Essentially, most forecasters fall into one of two camps: Camp one are the extrapolaters. They take whatever trend exists at present, and project them out to infinity and beyond. This makes them right in expansions, but causes them to miss major turning points.

Camp two are the anticipators: They look for signs that the present trend is about to end. They often are too early, and miss some of the existing trend in order to capitalize on the reversal. (I have struggled to keep a foot in both camps, sometimes less successfully than others).

The bottom line is this: Economists as a group are a paid part of the Wall Street machinery. They do not get raises or promotions even when they correctly forecast a Recession. Its verbotten. Outside of academia, its even referred to as The "R" word.

~~~

A perfect 5-0 record? Perhaps that’s their pre-season score. But when the big money is on the line, when its crunch time in the SuperBowl, you can expect the entire group of on the dismal scientists — as a whole — to do what they have always done: choke big time . . .

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Source:
Fair but Unbalanced
BRIAN S. WESBURY
WSJ, August 9, 2007; Page A13
http://online.wsj.com/article/SB118662385061692552.html

Free version
http://www.opinionjournal.com/extra/?id=110010446

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