Economists really stink at predicting one of the most important events they track: Recessions. A recent study of 60 recessions that hit various countries in the 1990s found that only 3 percent of “consensus forecasts” (as they’re known in financial circles) made by groups of economists correctly predicted one of those recessions a year in advance. And when they did see one coming, they underestimated its severity by a long shot.
Who knew that economists were such cockeyed optimists? Like historians and political analysts, they’re much better at breaking down past events than calling future ones.
In the coming months, you’ll hear a lot from these so-called scientists about the recession not being as bad as expected… about a coming market turnaround or the economy bouncing back. Take all of it with a grain of salt. Their track record says it’s probably not true. On the other hand, whenever you hear dire warnings from them, take it very seriously. Those are likely to be true.