ECONOMISTS

You'd have a hard time assembling a group who are wrong more often than economists.

The late Laurence J. Peter, most remembered for his book The Peter Principle, said: "An economist is an expert  who will know tomorrow why the things he predicted yesterday didn't happen today."

Never approach an economist without a model in your hand. In his recent tirade about David Stockman, Paul Krugman, the NYT's economic gofer, wrote, he was "...disappointed (in Stockman's) gee-whiz, context-and-model free numbers embedded in a rant..."

An economist without a model is like a severe ED sufferer without Viagra. They both can't get it on.

Harry S. Truman, the nation's 33rd president, spent a good part of his term looking for a "two-handed economist." It seemed every time he'd ask for an opinion his economic advisors would answer with "On the one hand..."  and then conclude with "on the other hand."

An acquaintance who worked at The Federal Reserve several years ago told me he once asked  a cute female economist there for her phone number and she quickly gave him an estimate.

In 1998 William A. Sherder's The Fortune Sellers: The Big Business of Buying and Selling Predictions landed in bookstores. A business consultant, Sherder spent years tracking the predictive accuracy of several important areas that impact our lives from meteorology to economics to investments to technology and futurology.

Back then it was a $10 billion a year business. You can guess what today's take is. But just how accurate are they and just how much are people getting for their money. Not very and not much.

Meteorology, Sherder acknowledged, has a scientific basis, but it's hardly reliable. Studies have shown the orange juice concentrate futures market more accurate at predicting Florida weather patterns than meteorologists. Sorry Dallas.

Then there is the University of Iowa presidential futures market. It's seldom wrong in predicting the eventual winner. But Sherder reserved some his most damning findings for members of the dismal science.

He cites a 1985 article from Economist magazine that compared the accuracy of the predictions from UK sanitation workers with the heads of several top-drawer UK economic firms about the country's future economic growth The result: they tied.

Closer to home Sherder tracked data from 1975-1995 about economic forecasts predicting major turning points in the US economy. Forty-six of the 48 he tracked were incorrect.

Economists, God bless their dismal souls, profess to love data. To put some further bite into Sherder's economic data bark, in July, 1982, with the prime rate at 16.5% the WSJ surveyed leading economists about their outlook for interests rates. Most claimed the prime rate would finish the year at 15%. Their take on equities no less gloomy.

One of the economists, a former clarinet player in a Benny Goodman-wanna-be band, then toiling away on Wall Street, Alan Greenspan, predicted rates would finish the year at 16%. By mid-October, however, the prime rate had been cut 7 times and wound up 1982 at 11.5%.

 The dramatic reversal pumped new juice into the stock market and the DJIA rallied 34% by year end.

Now for those who might argue these examples were then but what about now? Even a cursory search of the literature will show plenty more timely examples that the predictions of the dismal science are at best pretty much, well, dismal.

Greenspan for those who might not recall preceded Big Ben. Depending on one's point of view, some say it's indeed difficult to find two Fed chairman who have screwed things up more than these two.

Risk your personal portfolio on their calls at your peril.
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