The funny reason economists got 2023 all wrong

An article in Forbes December 29 noted that many star economists made predictions about 2023 that were simply wrong.

These include the eminently respectable Mohamed El-Erian, who said late in 2022 that we were headed for a “profound economic and financial shift”, and not the good kind. Meanwhile, the S&P 500 closed the year yesterday up 24 per cent. Profound indeed.

Then there is one of the most famous “Dr. Dooms” (there are others), Nouriel Roubini, who predicted that trillions would be lost and said “This bloodbath is likely to continue”. But of course, he says that every year.

“Despite inflation worries and Fed rate hikes, the stock market soared in 2023,”” reporter Jim Osman noted. “Easing inflation, hopes for a Fed pivot, strong earnings, and economic resilience fueled the rally, while managed geopolitical risks minimized their impact. Though not without some bumps, 2023 offered a surprisingly strong market performance, polar opposite to most predictions from the mainstream. In summary, while macro predictions can provide valuable insights, their accuracy is often hindered by the complexity of economic systems, the unpredictability of external factors, limitations in data, and human behavioral dynamics. As such, they should be viewed as one of many tools for understanding economic trends, rather than infallible guides to future outcomes, particularly when it comes to companies.”

We really should know better than to trust economists. And the reason is not obvious at first. Is it because predictions are hard? Yes. Is it because precedent doesn’t mean much? Also yes.

But there is another reason. Economists are a veritable bullseye of a target for humorists. And you know what they say, it’s funny because it’s true. That sentiment could not ring truer than with this subject matter and I thought these nuggets of infinite wisdom should be gathered in one place. So here we go.

“October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.”

This one, of course comes from Mark Twain who was, incidentally, a voracious investor, but not a good one. Twain lost most of the money he made writing books  in a new technology called the Paige typesetting machine, which he staked and then lost a whopping $300,000 on in the 1880s. I will let you convert that into today’s dollars at your leisure. It ain’t pretty.

“An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.”

This one is from Lawrence J. Peter, a Vancouver-born educator who famously came up with the The Peter Principle and its quote “In a hierarchy every employee tends to rise to his level of incompetence.”

“Prediction is very difficult, especially if it’s about the future.“

This one, often wrongly attributed to the great Yogi Berra, is actually from Niels Bohr, who was your run-of-the-mill the Nobel laureate in Physics and also the father of the atomic model. In other words an actual smart guy.

Sometimes economists are smart enough to know that economist aren’t as smart as they think they might be. That leads us to this beauty, which is often misattributed and phrased in differing ways. This is the whole excerpt, to give context to the quote, which is from economist Paul Samuelson and appeared in “Newsweek” in 1966.

“… stock prices do show more ups and downs than gross national product or business indicators generally. To prove that Wall Street is an early omen of movements still to come in GNP, commentators quote economic studies alleging that market downturns predicted four out of the last five recessions. That is an understatement. Wall Street indexes predicted nine out of the last five recessions! And its mistakes were beauties.“

Another economist, and another Canadian incidentally, has what is probably the winner here.

“The only function of economic forecasting is to make astrology look respectable”.

That’s from John Kenneth Galbraith, who was not one-hit wonder when it came to the topic, later coming up with this zinger, which is where we will leave it and wish everyone a terrific 2024.

“Economics is extremely useful as a form of employment for economists.”