The Housing Chronicles Blog: Should economists be ranked on their correct calls?

Wednesday, March 11, 2009

Should economists be ranked on their correct calls?

One of the greatest battles that economic and development consultants face is competing against those who really don't know what they're doing, but simply market and present well. I've been in meetings where you could almost scrape the BS off the wall, but everyone else in the room seems to be nodding (or sleeping?) without so much as a penetrating -- and therefore inconvenient -- question.

This is why I've been suggesting that when a large real estate project goes belly-up, a team of analysts should comb through the due diligence package to determine if it was simply larger market forces at work that would have torpedoed the best of plans (which is common), or if it was a collection of smoke and mirrors from the outset through which a high schooler of average intelligence could see.

Apparently Newsweek writer Joseph Epstein sees the same problem among economists, and has suggested that this group of experts, like baseball players, be subjected to a rating system based on how many times they get it right. From his article:

One of the not inconsiderable side effects of the current economic meltdown is the demise of the economic expert, if experts they truly ever were...

This might be a touch more forgivable if economists, as a profession, didn't specialize in displaying such relentlessly high confidence. I first picked up on this many years ago when watching John Kenneth Galbraith and Milton Friedman in debate. Here were two men who could not be brought to agree on the weather, but the one trait they shared was supreme confidence, each in his own absolute correctness. I have never met an economist whose demeanor suggested he harbored the least bit of doubt...

When economists appear on television, they ought, like baseball players in the batter's box, to have their averages (how many times they have been right, how many wrong in their prognostications) shown in a crawl beneath their confident faces...

After being wrong so often during the current crisis, an unseemly humility is beginning to show up in economists. On television, Liz Ann Sonders, the chief investment strategist for Charles Schwab, recently said, "Look, I would love to know where we go from here, but no one does."

Warren Buffett, the great economic guru of the Prairie, whose Berkshire Hathaway company has lost more than 30 percent of its value, suddenly seems a lot less godlike. Ben Bernanke, the head of the Federal Reserve, comes on as anything but super-confident in the grand old economistic style...

Ah, yes, the mysteries of life—the passions, the envy, the greed, the mischievous second hand undoing the supposedly careful work of the invisible hand of the market, the unpredictable everywhere scrambling those best-laid plans.

All this has been playing out, leaving chaos in its wake, while the gods of fate and destiny bend over the table, sly smiles on their faces, utterly heedless of the pathetic predictions of the once haughty economists, until now so happy in their work—leaving the rest of us to fight through the current crisis as best we are able without benefit of their deeply flawed advice.

Exactly. Aside from the guys at Beacon Economics, of course, who DID get it right before the bubble(s) burst.

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