The Stanly News and Press (Albemarle, NC)

Opinion & Letters to the Editor

November 2, 2012

Can we predict the economic future?

Friday, November 2, 2012 — I’m often asked to be a fortune-teller. Not the kind that uses the stars or cards to predict personal relationships and happiness.

Instead, I’m asked to predict the economy, on everything from growth to types of jobs to the stock market highs and lows. People think that because I have a Ph.D. behind my name and because I’ve been at my teaching gig for 35 years, I must be able to see things in the economic future that others can’t.

Let me be the first to say I’m totally flattered when asked for my forecasts. And, like most of my colleagues, I certainly have forecasts and am willing to give them. Yet I always say to take my or any economist’s projections not with a grain of salt, but with a ton.

Indeed, when I give forecasts, I always include some unpredictable yet looming factor that might occur that could make my forecasts wrong.

That way I’ll have an excuse. Or I use the tactic (jokingly) given by an economist long ago to never give a number and a date together. That is, I can predict unemployment will reach 5 percent, but I won’t say when.

I hope you realize I’ve been having fun with this topic, but it really is a serious issue. Businesses, government and even households have to make economic forecasts in order to plan successfully for the future.

For example, a county government has to make forecasts about the real estate market and property tax revenues in order to plan a school construction program.

Or like most states, the State of North Carolina is required to have a balanced budget. Therefore, in order to know how much it can spend next year, the state must have some prediction of the future condition of the economy because that will largely determine the amount of tax revenues.

The problem is that economic predictions – even from professionals like me – sometimes (often) are way off. Clearly the best recent example is the housing crash, one of the most devastating economic calamities in our history. In the opinions of most economists, the housing crash is the major factor behind the deep recession we’ve been through and the subsequent slow recovery.

And yet most economists, including yours truly, missed it. To my credit, I am on record as saying the housing boom, which preceded the crash, couldn’t be sustained. I simply couldn’t see average house prices rising forever at 13 or 14 percent annual rates, as they did in the mid-2000s.

But I thought those rates would gradually slow to the historic average of 3 to 4 percent annually. Never did I see house price changes turning negative, resulting in the average home losing one-third of its value in the last five years.

So what makes economic forecasting so difficult? One reason is we’re dealing with humans. Unlike my friends in the physical sciences (chemistry, physics, etc.), who can run controlled experiments where they can isolate factors and see if “A” causes “B,” we can’t do that in economics. We can’t control for all the myriad of factors influencing economic decision-making, even everyday decision-making like what kinds of foods to purchase.

Another issue, quite frankly, is that economists in general aren’t willing to take big chances in predicting major changes in the economy’s path. Part of the reason is that we rarely see gigantic swings in the economy’s direction. The broadest measure of our economy – gross domestic product (GDP) – usually moves in a range of minus 1 percent for a low to 3 percent for a high. While making a prediction outside that range will get an economist acclaim if correct, in the vast majority of cases, it will be wrong. So inertia is a strong force for economists, just as it is for others.

Maybe the simplest reason why economic forecasting is hard is because forecasting the forces driving the economy is hard. For example, by their nature, most discoveries, inventions and innovations are unpredictable. The development and application of the microchip began the revolution in information technology, which many compare to the previous agricultural and industrial revolutions as game changers in our economy. Yet who could have predicted 70 years ago the microchip’s development?

Right now there are exciting innovations occurring in energy, nutrition, robotics, nanotechnology and even manufacturing (3D and “additive” manufacturing) that could completely restructure our and the world’s economies. If and when these innovations materialize as practical applications, they could spawn whole new industries and expand or shrink others.

The realization of economic unpredictability creates an educational challenge. If we don’t know where the economy will be in 10 years along with the kinds of jobs that will be needed, how can we design course offerings, fields of study and occupational training at our universities, colleges and high schools? Do we need to worry about today’s training being obsolete in a few years? What does this imply for the debate between a broad, general curriculum versus specific, occupationally focused training? And can technologically based education (on-line courses, training “apps”) help shift educational programs rapidly?

I can’t predict the answers to these queries (remember, I’m an economist). However, they’re some of the most thought-provoking questions facing us. You decide how we’ll get the answers.


Text Only
Opinion & Letters to the Editor
  • Brent Laurenz Special election adds to the mix

    RALEIGH – A busy slate of judicial elections this November got even busier recently when Judge John Martin of the N.C. Court of Appeals announced his retirement.
    A special statewide election to fill Martin’s seat will be added to the general election ballot, joining the four N.C. Supreme Court seats and three N.C. Court of Appeals races already slated for this fall.

    July 25, 2014 1 Photo

  • Patrick Gannon Fake news or sign of some more trouble?

    RALEIGH – Of the three situations I can recall where agencies receiving large sums of taxpayer dollars wouldn’t divulge employees’ salaries, two of them ended badly. The third – involving a group of charter schools in Southeastern North Carolina – is playing out right now.

    July 25, 2014 1 Photo

  • Almost half of America's obese youth don't know they're obese

    WASHINGTON - The good news is that after decades of furious growth, obesity rates finally seem to be leveling off in the U.S.. The bad news is that America's youth still appear to be dangerously unaware of the problem.

    July 23, 2014

  • Darth Vader is polling higher than all potential 2016 presidential candidates

    On the other hand, with a net favorability of -8, Jar Jar is considerably more popular than the U.S. Congress, which currently enjoys a net favorability rating of -65.

    July 23, 2014

  • D.G. Martin Where did all these new voters in North Carolina come from?

    “Voters born elsewhere make up nearly half of N.C. electorate.”
    So begins the latest DataNet report from the UNC Program on Public Life, directed by former journalist Ferrel Guillory.

    July 23, 2014 1 Photo

  • Patrick Gannon Some light for Dems in their time of darkness

    RALEIGH – Earlier this year, state Sen. Ben Clark, a Hoke County Democrat, became a hero for a day among his party and environmentalists when his amendment to require more well water testing near future fracking sites passed the Senate. It even gained the support of a number of GOP senators, against the wishes of the Republican bill sponsor.

    July 23, 2014 1 Photo

  • mama.jpg What we get wrong about millennials living at home

    If the media is to be believed, America is facing a major crisis. "Kids," some age 25, 26, or even 30 years old, are living out of their childhood bedrooms and basements at alarmingly high numbers. The hand-wringing overlooks one problem: It's all overblown.

    July 22, 2014 1 Photo

  • Doug Creamer Maintaining hope

    Gardeners are facing challenges with the weather this year. It seemed like we were getting great conditions in April and May. The weather was warm and we were getting some good rains. Then sometime in June the rain stopped. It got so dry that I didn’t have to cut the grass. While I enjoyed the break, the garden was not happy at all. I was having to water quite a bit to keep the vegetable garden alive and growing.

    July 22, 2014 1 Photo

  • Jason O. Boyd I may be a bit behind the times, but at least I can find ‘America’

    I seem to be reading about and dealing with technology a lot lately.
    I  love technology and have always been fascinated by gadgets of all kinds and the wonderful things they can do. You never seem to go through an entire day without some form of invention enhancing your life.

    July 21, 2014 1 Photo

  • Brent Laurenz Meeting out in open helps negotiations move ahead

    RALEIGH – State lawmakers reconvened in Raleigh on May 14 promising a brief legislative session this summer, but as July moves along they are still in town and tackling big issues.

    July 21, 2014 1 Photo

House Ads
Seasonal Content