Friday, July 8, 2011

Economists Still Employed, Despite Seeming Incompetence

Tim Iacono asks why so many people still turn to economists for financial forecasts when they clearly missed what so many people with no training in the field could see the housing bubble, the credit bubble and surging wealth on Wall Street as signs of imminent instability. He cites a story in CNN Money survey that pinpoints current economists’ biggest fears, which include the sovereign debt default of Greece and oil price shock, and wonders the experts’ responses would have been if asked the same question in 2008. For more on this continue reading the following article from Tim Iacono.

You have to wonder why, after the disastrous performance by economists in assessing risk just a few years ago when it was clear to many non-economists that the whole housing / credit market bubbles were going to end badly, the mainstream financial media continues to ask the dismal set what they fear most these days. But, they do.

This CNN/Money report indicates European sovereign debt and high oil prices top their list, so, it’s a pretty safe bet that the cause of the next financial crisis will be something else.

U.S. policymakers are racing to reach an agreement before the debt ceiling is breached. But the biggest risks to the U.S. economy are mostly out of their hands.

CNNMoney surveyed 27 economists and asked them to choose from a list of possible threats facing the economy. What scares them most? A sovereign debt default by a European country such as Greece. More than half of those surveyed ranked it as one of their top two concerns, with 10 choosing it as their number one worry.

“A Europe debt default could cause financial crises as large as the 2008 one due to financial system interconnections,” said Bill Watkins, executive director of the Center for Economic Research and Forecasting.

Another oil price shock, which most likely would come from further political turmoil in the Middle East and North Africa, is their next biggest worry.

If there was a similar poll back in the middle of the last decade, it sure would be nice to have a look at what this group was thinking back then as, with only a few exceptions, economists were mostly just marveling at what a wonderful financial world it was where everyone was getting wealthy through rising asset prices and Wall Street was booming.

This article was republished with permission from Tim Iacono.

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