UM Economists: GDP will grow by 2.9759312053 percent in 2037

by

(Cross-posted from Students for a Free Economy.)

“It’s hard to see the future with egg all over your face.”  –  Michael LaFaive

The same University of Michigan “Research Seminar in Quantitative Economics” personnel who participate in the official revenue estimating conferences that cue the governor and legislature about how much they can spend each year are predicting a “moderately severe” recession, prevented from being worse by an expected federal “stimulus package” consisting of more government handouts, bailouts and deficit spending.

According to the UM team, Michigan will lose 108,000 jobs in 2009, but 2010 will be “much better.” However, before basing any plans on that you might want to review this crowd’s track record. Just three months ago they were prediciting with equal precision and certainty that, “Sometime in 2010,  the state will see a slight gain of 33,000 jobs — but only after another 89,000 jobs disappear this year and the next.”

Looking back further, UM’s cracked crystal ball made these predictions:

“Joan Crary, also of the University of Michigan, said she believes that Michigan can expect some positive job growth over the last quarter of the year with a sharper acceleration occurring in the first quarter of 2004. From mid 2004 through the end of 2005, Crary said she expects Michigan to see a two percent job growth rate.” (Mirs News, Oct. 14, 2003)

“And there will be some job growth in Michigan for the year, his colleague Joan Crary said. But where the U.S. may make up all the jobs it lost over three years and more, Michigan will see just a fraction of the jobs it has lost recovered.”  (Gongwer News, Jan. 14, 2004)

“Joan Crary said the outlook for 2005 for a net gain of 32,000 jobs will mark the first job growth since 2000 and that growth over the next two years will only make up for losses in 2003 and 2004.’” (Gongwer News, Jan. 13, 2005)

Oops! Of course none of those even came close, nor did the state revenue projections based on them, resulting in the so-called “deficits” that have been a feature of Michigan budgets throughout this decade. (Lansing’s definition of “deficit” is the gap between desired spending and expected revenue.)

Of course it’s delusion born of hubris for ”econometricians” to think that they can precisely predict future economic activity. The absurdity is highlighted by the predictor’s apparent disregard for the effects of increasingly unfavorable state and now federal economic policy. They treat human beings like automata, proceeding irrevocably along certain paths regardless of changes in incentive structures, not as rational beings motivated by self-love and guided by ever-evolving expectations about the future.

A related aspect of the hubris is to imagine that individuals can’t distinguish between false, ephemeral ”incentives” like debt-financed handout/bailout/spending “stimulus” packages, and the underlying real economic (dis)incentives to work, invest and take entrepreneurial risks, including growing tax and regulatory burdens. The former won’t grow the economy, and the only surprise is that people who pretend otherwise continue to be surprised when their predictions fall flat.

~~~~~~~

…no matter how unequivocal the evidence that experts cannot outpredict chimps or extrapolation algorithms, we should expect business to unfold as usual: pundits will continue to warn us . . .  of what will happen unless we dutifully follow their policy prescriptions.  (T)he consumers of expert pronouncements  are in thrall to experts for the same reasons that our ancestors submitted to shamans and oracles: our uncontrollable need to believe in a controllable world and our flawed understanding of the laws of chance.”  Philips Tetlock

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: