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On the reliability of forecasts

Whether economic, meteorological or political.

A trader watching his chart while working on the floor of the New York Stock Exchange.
A trader watching his chart while working on the floor of the New York Stock Exchange.
REUTERS/Brendan McDermid

Just a brief note to pass on a great quote from an economist about the challenges of forecasting.

If you’re smart enough to read MinnPost, you know that economic forecasts abide deeply and permanently in the category of educated guesses. “Educated,” yes, because the forecasters know much more than you or I do about the latest numbers. But nonetheless “guesses” because those numbers are always about the recent past or at best the immediate present, while the guesses are about the future.

And no amount of information about the present (or certainly the past) really enables you to see the future – of the weather, of the chance of your favorite team making the playoffs or of the economy. We know that, but sometimes it’s hard not to take the forecast of really smart people as if they are more fact-like than they are.

So I loved the cautionary remark about such things from Ian Shepherdson, chief economist and founder of economic research firm Pantheon Macroeconomics, about what he calls the “precision,” and what I might call the “reliability” of all such forecasts, and the even greater difficulty of such a game when trying to forecast the economic future in the time of a pandemic, which, itself has defeated all efforts at forecasting its likely next turn.

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When David Lynch of the Washington Post talked to Shepherdson about how confident he was in his newest economic forecast (which is, of course, substantially revised from the previous forecast because of the latest negative developments in Covid news), Shepherdson told Lynch:

Everybody wants to be pursuing precision. But even before covid, it was like hitting a moving target from a moving vehicle. Now, we’ve got a blindfold on as well.