Economists Predict Recession Quotes

in the 1990s, economists predicted only 2 of the 60 recessions around the world a year ahead of time.

economists predicted only 2 of the 60 recessions around the world a year ahead of time.21

Sadly for Bitcoin, most Austrian economists aren’t fans – even as Bitcoiners remain huge fans of Austrian economics.27 You will find Austrian jargon in common use in the cryptocurrency world. Proponents of Austrian economics include the fringe economics blog Zero Hedge, which has confidently predicted two hundred of the last two recessions. Zero Hedge covers Bitcoin extensively, and Bitcoiners are fans in turn.

Larry Kudlow hosted a business talk show on CNBC and is a widely published pundit, but he got his start as an economist in the Reagan administration and later worked with Art Laffer, the economist whose theories were the cornerstone of Ronald Reagan’s economic policies. Kudlow’s one Big Idea is supply-side economics. When President George W. Bush followed the supply-side prescription by enacting substantial tax cuts, Kudlow was certain an economic boom of equal magnitude would follow. He dubbed it “the Bush boom.” Reality fell short: growth and job creation were positive but somewhat disappointing relative to the long-term average and particularly in comparison to that of the Clinton era, which began with a substantial tax hike. But Kudlow stuck to his guns and insisted, year after year, that the “Bush boom” was happening as forecast, even if commentators hadn’t noticed. He called it “the biggest story never told.” In December 2007, months after the first rumblings of the financial crisis had been felt, the economy looked shaky, and many observers worried a recession was coming, or had even arrived, Kudlow was optimistic. “There is no recession,” he wrote. “In fact, we are about to enter the seventh consecutive year of the Bush boom.”19 The National Bureau of Economic Research later designated December 2007 as the official start of the Great Recession of 2007–9. As the months passed, the economy weakened and worries grew, but Kudlow did not budge. There is no recession and there will be no recession, he insisted. When the White House said the same in April 2008, Kudlow wrote, “President George W. Bush may turn out to be the top economic forecaster in the country.”20 Through the spring and into summer, the economy worsened but Kudlow denied it. “We are in a mental recession, not an actual recession,”21 he wrote, a theme he kept repeating until September 15, when Lehman Brothers filed for bankruptcy, Wall Street was thrown into chaos, the global financial system froze, and people the world over felt like passengers in a plunging jet, eyes wide, fingers digging into armrests. How could Kudlow be so consistently wrong? Like all of us, hedgehog forecasters first see things from the tip-of-your-nose perspective. That’s natural enough. But the hedgehog also “knows one big thing,” the Big Idea he uses over and over when trying to figure out what will happen next. Think of that Big Idea like a pair of glasses that the hedgehog never takes off. The hedgehog sees everything through those glasses. And they aren’t ordinary glasses. They’re green-tinted glasses—like the glasses that visitors to the Emerald City were required to wear in L. Frank Baum’s The Wonderful Wizard of Oz. Now, wearing green-tinted glasses may sometimes be helpful, in that they accentuate something real that might otherwise be overlooked. Maybe there is just a trace of green in a tablecloth that a naked eye might miss, or a subtle shade of green in running water. But far more often, green-tinted glasses distort reality. Everywhere you look, you see green, whether it’s there or not. And very often, it’s not. The Emerald City wasn’t even emerald in the fable. People only thought it was because they were forced to wear green-tinted glasses! So the hedgehog’s one Big Idea doesn’t improve his foresight. It distorts it. And more information doesn’t help because it’s all seen through the same tinted glasses. It may increase the hedgehog’s confidence, but not his accuracy. That’s a bad combination.

When the central bank lowers interest rates below what they would have reached on the market, it sets in motion a series of responses by investors and consumers that will prove to be incompatible. The result is the recession, which is the economy’s return to health: the economy’s unsustainable configuration is unwound, and resources (including labor) are reallocated to lines of production that make sense in terms of resource availability and consumer preferences.

I asked our business leaders in the depths of the recession to begin working with their suppliers to prepare for the recovery. This seemed impossible to leaders at the time, since many economists and some of my staff were predicting that we’d see an L-shaped recovery—one that was essentially nonexistent. Our sales, according to this view, would never rebound to their prerecession levels. I insisted that recovery would come, just as it always had in the past. And when it did, our short-cycle businesses had to make sure they were first in line for supplies. Our leaders began these conversations, working with suppliers up front to lock in first priority over our competitors when the recovery came. This represented independent thinking on our part—our competitors weren’t doing this. We also took the opportunity to negotiate better payment terms, price reductions, and long-term deals, which were all easier to obtain during a recession. As a result of this effort, we got a big lift as the economy improved, outpacing our competitors in our sales growth, to the delight of our investors.