Robert Shiller recently wrote about on the value of
economics. I agree with most of what he says, but he also seems to perpetuate a
myth about the inability of economists to forecast downturns in the economy.
Shiiler states that “Indeed, economists failed to forecast most of the major
crises in the last century, including the severe 1920-21 slump, the 1980-82
back-to-back recessions, and the worst of them all, the Great Depression after
the 1929 stock-market crash.”
Read
more at http://www.project-syndicate.org/commentary/are-economists-good-by-robert-j--shiller-2015-01#IvJFopWQS6EmSZ2Z.99
I am
not going to address all of these recessions, but it is relatively easy to look
back to 1980. In the New York Times I find this
“the
April decline in the composite index was the fourth in the last six months and
comes at a time when many private economists are predicting a mild recession
during the last half of 1979.” New York Times
June 1, 1979 pg. D1.
And this
“Summarizing the latest Data Resources forecast, Miss Mosser
said that “the economy will at best slow down and at worst we’ll see a double
dip come the first of this year.” New
York Times Dec. 2 1980 pg. A1.
Not all economists agreed, but it is certainly not the case
that no one saw it coming.
Forecasting recessions with a reasonable degree of accuracy
is actually one of the easier things to do in economics. The yield curve, for
instance, is an easy to use and pretty reliable tool. If it is upward sloping the
chances of a recession in the near future are small. If it flattens out or
slopes downward the chances of a recession are pretty good. Anyone paying
attention to the yield curve should not have been surprised by our most recent
recession.
It is harder to forecast the severity of recession, but Shiller was one of a number of economists that
expressed concerns about the underlying strength of the economy in the time
leading up to the most recent financial crisis, suggesting that next recession
could be severe because of problems in financial markets.
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