If there’s anything 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, in a survey of American Journalism, that the majority of U.S. networks now offer more opinion pieces and interviews than original 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 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 collapse that came as a direct result of that repeal turned out to be the worst economic upheaval since the Great Depression, and nearly took down the entire financial system.
And the future was evidently a little blurred and 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.” 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 her 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, the crash did not happen. In fact, it took less than an hour the next morning for the Dow to make its way back into positive territory and would, over the next few days of trading, go on to make 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, with their fingers on the pulse of the economy — can be so consistently wrong about the future?
I think it’s very simple: Nobody, regardless of the degrees they hold, no matter how well connected they are, or the kind of positions they’ve held, can predict the future. I can’t, you can’t, and neither can Drs. Summers, Bernanke, or Krugman. The brain trust over at 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 to this is simple as well.
I think it’s human nature to want to improve our position in life, to grow and get better at the things we do. That can mean looking for a short-cut, or finding some kind of edge to get us to where we want to be just a little bit sooner. Other times, we may just be seeking a kind of validation, and to discover an expert, someone you may already know and respect, shares your opinion or agrees with something you are doing, 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. No guru or fortuneteller can help you with retirement.
But keeping your fortune safe and your retirement intact requires little more than seeking the right financial tools to complement your current financial situation, and the willingness to put a clear, well thought out plan into action.