>From Karen Cole, in Portland. -----------------------------------------
This OpEd about NYU economics professor Nouriel Roubini should be of interest to everyone, not just the economists on this list Dr. Doom "Recessions are signal events in any modern economy. And yet remarkably, the profession of economics is quite bad at predicting them. A recent study looked at "consensus forecasts" (the predictions of large groups of economists) that were made in advance of 60 different national recessions that hit around the world in the '90s: in 97% of the cases, the study found, the economists failed to predict the coming contraction a year in advance. On those rare occasions when economists did successfully predict recessions, they significantly underestimated the severity of the downturns. Worse, many of the economists failed to anticipate recessions that occurred as soon as two months later. The dismal science, it seems, is an optimistic profession. Many economists, Roubini among them, argue that some of the optimism is built into the very machinery, the mathematics, of modern economic theory. Econometric models typically rely on the assumption that the near future is likely to be similar to the recent past, and thus it is rare that the models anticipate breaks in the economy. And if the models can't foresee a relatively minor break like a recession, they have even more trouble modeling and predicting a major rupture like a full-blown financial crisis. Only a handful of 20th-century economists have even bothered to study financial panics. (The most notable example is probably the late economist Hyman Minksy, of whom Roubini is an avid reader.) "These are things most economists barely understand," Roubini told me. "We're in uncharted territory where standard economic theory isn't helpful." ...The United States will likely muddle through the crisis but will emerge from it a different nation, with a different place in the world. "Once you run current-account deficits, you depend on the kindness of strangers," Roubini said, pausing to let out a resigned sigh. "This might be the beginning of the end of the American empire." http://www.nytimes.com/2008/08/17/magazine/17pessimist-t.html <https://webmail.ic.gc.ca/exchweb/bin/redir.asp?URL=http://www.nytimes.com/2008/08/17/magazine/17pessimist-t.html> ALSO SEE Paul Krugman's Doomsayer http://krugman.blogs.nytimes.com/2008/08/16/doomsayer/ <https://webmail.ic.gc.ca/exchweb/bin/redir.asp?URL=http://krugman.blogs.nytimes.com/2008/08/16/doomsayer/>
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