Thursday, February 21, 2013

Economist Skewers Fed’s Expert Outlook

Tim Iacono takes note of Neil Irwin’s recent critique in the Washington Post of U.S. government economists and their prognostications for the last few years, arguing that they basically don’t know what they’re talking about and may even be guessing. He points to their GDP growth predictions for 2011 and 2012 and how they were both similarly inflated. He then points to the outlook for 2013 and suggests the rhetoric could have been cut and pasted from previous years, leaving some to expect the worst when it comes to this year’s economic performance. For more on this continue reading the following article from Iacono Research.

A look at the abysmal track record in recent years in forecasting economic growth by the nation’s top government economists as related by Neil Irwin in this Washington Post story. Also see the related graphic that depicts how poor a job the economy has been doing in getting back to its “potential” growth.
They say that the essence of futility is to keep doing the same thing while expecting a different result. But is that what key government forecasters are doing in determining their outlook for the economy?

Throughout the halting economic recovery that began in 2009, the formal economic projections released by the Congressional Budget Office, White House Council of Economic Advisers, and Federal Reserve have displayed quite a consistent pattern: This year may be one of sluggish growth, they acknowledge. But stronger growth, of perhaps 3.5 percent, is just around the corner, and will arrive next year.

Consider, for example, the Fed’s projections in November of 2009. Sure, growth would be slow in 2010, they held. But 2011 growth, they expected, would be 3.4 to 4.5 percent, and 2012 would 3.5 to 4.8 percent growth. The actual levels of growth were 2 percent in 2011 and 1.5 percent in 2012.

What’s amazing is that the Fed’s newest projections, released in December of 2012, look like they could have been copy and pasted from 2009, just with the years changed: They forecast sluggish growth in 2013, 2.3 to 3 percent, followed by a pickup to 3 to 3.5 percent in 2014 and 3 to 3.7 percent in 2015.
Increasingly, it appears that this is one of those times when “it really is different” in that we’re not about to return to “trend growth” and for good reason – it was artificial, based on a reckless expansion of credit.

Then again, another reckless expansion of credit might just do the trick.

This blog post was republished with permission from Tim Iacono.

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