If there’s any one thing you’re bound to hear a lot about this month, it’s predictions.
Sure, there will be plenty of New Year’s resolutions, but most of those will be rendered moot by the middle of February (anyone with a gym membership knows I mean). What will persist is the almost constant issuing of predictions, or should I say opinions?
The situation is such that the Pew Research Center revealed, not long ago in its State of the News Media survey of American Journalism, that the majority of U.S. networks now offer more opinion pieces and interviews than original news reporting. (The ratio of opinion to reporting being was an astonishing 85% -15% at one major cable news channel.)
The Fallacy of Economic Forecasting
It seems as though the media doesn’t care much about the importance of bad economic prediction, as it rarely takes issue with the source regardless of how outrageous the speculation.
For instance, no one will ever accuse former Treasury Secretary Larry Summers of having a crystal ball. After assuring the American public in 1999 that pushing through the repeal of the Glass-Steagall Act would be “the right framework for America’s future financial system,” it took less than a decade to discover how remarkably inept he had been at seeing the future. The crisis and collapse that came as a direct result of that repeal turned out to be the worst economic upheaval since the Great Depression, and nearly ended up taking down the global financial system.
And the future was evidently a little out of focus for Federal Reserve Chairman Ben Bernanke as well when, in March of 2007, he assured everyone the financial system was safe. “Nothing to be concerned about,” he said, “the damage caused by the massive housing and mortgage fraud wouldn’t spill over into the general economy or the stock market.”
As it turned out, Ben couldn’t have been more wrong, and no one who lived through the event is likely ever to forget the devastation and destruction wrought by the financial crash of 2008.
So why does anybody listen when one of these so-called experts offers up another opinion or prediction?
Part of the answer is inextricably linked to the role the media play in our social and economic discourse, through the so-called “thought leaders.”
To the point; More recently, early on the morning of November 8th, Election Day, the New York Times, based on the latest polling data, concluded Mrs. Clinton would begin the day with an 85% chance of becoming the next president of the United States.
But as the hour grew late and victory started to look out of reach, the financial markets reacted with the DJIA falling by more than 700 points in the overnight session. Around midnight, while ballots were still being counted, Nobel economist Paul Krugman tweeted, “Many people have been asking me about when markets will recover from a Trump victory. I don’t care, even though it’s in my area of specialty. However, my guess is that it will never recover from one.”
Alas, there was no crash, and the market recovery took place in a little less than an hour the following morning. Once the Dow made its way back into positive territory it would, over the next few days of trading, go on to set a series of new record highs — not exactly the kind of thing anyone would call prescient.
Takeaway: No One Has a Crystal Ball
How come people of a certain social or intellectual caliber — experts at the highest levels of government and finance, some with their fingers on the pulse of the economy — can be so wrong about the future? It’s very simple: Nobody, no matter how well connected they are, no matter the degrees they hold, and regardless of the experience they have, can predict the future. I can’t, you can’t, and neither can Drs. Summers, Bernanke or Krugman. And the New York Times can’t either.
A moment ago, I asked why it is that anyone listens when someone famous tells us what he or she thinks the future holds, and I believe the answer is simple.
I think it’s our human nature to want to improve our position in life, to grow and get better at the things we do. That means we are looking for an edge, to find some kind of an advantage to get us where we want to be just a little bit quicker. Other times, we may be seeking some kind of vindication, and to discover an expert agrees with something you are doing (or considering) can be very reassuring.
Hindsight is often referred to as being “20-20,” but it is well beyond our ability to know with much accuracy what tomorrow holds for us, let alone years or decades into the future. Meaning no guru, fortuneteller, or media-appointed expert can help you with your retirement.
But keeping your life-savings and your retirement intact requires little more than finding the proper financial tools to complement your situation, and the desire and willingness to put that plan into action. You can get started anytime.