Tags: Rahn | forecasts | economy | predict

Cato's Rahn: Take Forecasts on Economy With Big Grain of Salt

By    |   Tuesday, 30 December 2014 01:57 PM

The track record of experts' forecasts in fields across the board is none too impressive, and that includes the economy, says Richard Rahn, a senior fellow at the Cato Institute.

"Economists have little to crow about when it comes to forecasting," he writes in The Washington Times.

"Most of them missed calling the Great Recession. The Federal Reserve, which employs hundreds of economists, kept predicting 4 percent-plus economic growth each year after the recession bottomed in 2009. In fact, actual growth has been about half of [that.]"

Rahn explains that most economists are wrong because "they still use Keynesian economic models that treat increases in government spending as a positive rather than a negative, among other errors."
If economists want accurate predictions they must know what actions the Fed, Congress and the White House will take on monetary, fiscal and regulatory policy, Rahn explains. And they have to know what will happen overseas too.

"The impossibility of knowing all of this does not mean that it is not useful to attempt to forecast, but merely that it is not scientific in the way that we can precisely predict the boiling point of water at a specific atmospheric pressure," he says.

Meanwhile, hedge fund star Doug Kass, president of Seabreeze Partners Management, has created a list of surprises that he expects next year.
  • "Faith in central bankers is tested (stocks sink and gold soars)," he writes on TheStreet.com. After the Fed raises interest rates by 25 basis points in April, he expects "such global market turmoil that it is the only hike made all year."
  • "The U.S. stock market falters in 2015." Kass forecasts a 10 percent decline. "While earnings expectations disappoint, the real source of the market decline in 2015 is a contraction in valuations," he writes. The S&P 500 had a trailing price-earnings ratio of 19.67 Friday, up from 18.98 a year ago, according to Birinyi Associates.
  • "The great three-decade bull market in bonds is over in 2015."

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The track record of experts' forecasts in fields across the board is none too impressive, and that includes the economy, says Richard Rahn, a senior fellow at the Cato Institute.
Rahn, forecasts, economy, predict
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2014-57-30
Tuesday, 30 December 2014 01:57 PM
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