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Surprise!

Posted at 8:00 AM on March 5, 2009 by Bob Collins (11 Comments)
Filed under: Economy

Why are economists so constantly surprised? It's becoming the tag line for just about every economic story lately: "... than economists expected." As in -- mostly -- "worse than economists expected." They're supposed to be the smartest people in the room.

Today's invocation, as cited by the Associated Press:

The number of laid-off workers receiving unemployment benefits has jumped to an all-time high near 5 million while new jobless claims remain well above 600,000. Both figures were worse than expected and new projections from the Federal Reserve show unemployment rising for the rest of this year.

Three days ago the government released the monthly report on consumer spending. Economists got it wrong... again:

The Commerce Department says consumer spending rose 0.6 percent in January, even better than the 0.4 percent gain that economists expected.

This comes on top of last week's bombshell that the economy shrank at the end of 2008 more than...well, you know...

The Commerce Department report released Friday showed the economy sinking much faster than the 3.8 percent annualized drop for the October-December quarter first estimated last month. It also was considerably weaker than the 5.4 percent annualized decline economists expected.

"Analysts" (economists who drive nicer cars, basically) don't get off the hook, either. Take today's earnings report from Target:

Discount retailer Target Corp. says its same-stores sales fell 4.1 percent in February. That was better than analysts had expected.

Wall Street, which hates to be surprised, is reacting to today's surprise in the way to which we've yet to become accustomed. Perhaps the solution is for economists to predict that things will be worse than they expect, then take the bounce when Wall Street is pleasantly surprised.

Granted it's not sound economic theory, but since when has that been a problem?

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Comments (11)

Broken record time... these are the same neo-liberal free market economists/analysts/financial advisers etc. that didn't see the recession coming in the first place. If you look the folks who saw it coming you find they are not surprised at all. I don't know how wrong people have to be before certain media outlets start looking for more credible sources.

Posted by Paul | March 5, 2009 8:35 AM

The John Stewart summary is a must see.

Posted by DN | March 5, 2009 9:26 AM

Economists have a sweet gig. It must be nice to be wrong 75% of the time and still be highly paid.

Posted by Jim | March 5, 2009 9:38 AM

And yet we all still listen to them anyway...

Of course they are going to be wrong most of the time. Unless they get it exactly right their estimates will be either low or high.

We, the consumers of information, just need to understand the limitations of economic projections, just like we know a weather forcast will likely be off much of the time. The models they use are actually quite similar.

Posted by brian | March 5, 2009 10:28 AM

I just wish our economy was based on something more stable than legalized gambling. I mean seriously, the house ALWAYS wins, not the players, and in this case Wall Street is the house.

Posted by Tonya | March 5, 2009 10:38 AM

//Of course they are going to be wrong most of the time. Unless they get it exactly right their estimates will be either low or high.

As long as the financial markets are going to react to them, I would suggest they estimates be low.

Posted by Bob Collins | March 5, 2009 10:39 AM

Their seemingly linear epistemology-- that's what's wrong. Its not just as simple as X causes Y.

In my opinion, they don't take the systemic view they need to. I think the study of nonlinear systems and chaos theory in economics is long overdue (in the required depth anyway).

The field of econ should look much more like meteorology than simple physics. It should be a blend of good science and systemic thinking.

Posted by Chad | March 5, 2009 10:51 AM

"The field of econ should look much more like meteorology than simple physics. It should be a blend of good science and systemic thinking."

"Economists have a sweet gig. It must be nice to be wrong 75% of the time and still be highly paid."

Perhaps the weather model is not the best one to suggest, at this time.

Posted by bsimon | March 5, 2009 12:06 PM

"As long as the financial markets are going to react to them, I would suggest they estimates be low."

Unfortunately, as soon as the "markets" figured out that economists always low ball, they will react to all estimates taking that into account.

"Perhaps the weather model is not the best one to suggest, at this time."

I think now is the perfect time. They literally use the same models. We all should start thinking of ecomomists like weather forcasters and take everything they say with a grain of salt. We should take everything we hear with a grain of salt, really.

Posted by brian | March 5, 2009 2:12 PM

Economists-R-Us announced today it has laid-off 1200 economists due to a “worse than expected” market. The recent slide of the Dow and S & P 500 was "more than they had anticipated".

Time will tell if more lay-offs are in store. The CEO of Economists-R-Us said in a released statement “...we won’t know until after the next round of lay-offs just how many were let go.”

Posted by G-Man | March 5, 2009 3:12 PM

Go to the website of This American Life (http://www.thisamericanlife.org/) and download last week's episode titled "Bad Bank" if you want to hear some economists saying what they really think. Warning: It ain't pretty.

Posted by Hodgram | March 6, 2009 6:52 PM