Muddled Optimism

The Bright Side of Demographic Reality
Messy but Happy
Manufacturing Renaissance
Memphis, Dallas, and Paris
How It Started and How It’s Going

“A man hears what he wants to hear and disregards the rest…”

—The Boxer, Paul Simon, 1969

One of the hardest parts of economic forecasting is separating what we expect from what we want. Actually, this is part of the human condition, genetically programmed into us and affecting every part of our society and lives, not just economic forecasting.

The second part (what we want) seems like it should be easy. Everybody wants solid GDP growth, low unemployment, stable prices, and so on, right? Not necessarily.

People have different motivations. Sometimes it’s political, with people wanting economic conditions that favor their side and put the other at a disadvantage. More often it’s just about our station in life. Some businesses see higher sales in a weak economy, so their owners aren’t afraid of recessions. If you’re a central banker who needs to control inflation, higher unemployment might seem helpful. If you have a lot of debt, inflation could be your friend.

I often talk about the limitations of economic data. That’s not the only problem. Even if we all agree on the data, we disagree on what to do with it because we all (or at least most of us) have different desired outcomes. Furthermore, even if we agree on the validity of the data, we don't agree on what it means or what we should do with it. From there, wishful thinking takes over. Wishful thinking is benign compared to political agendas, which can be terribly destructive. Forecasts become less objective and more extreme.