Recession Prediction Quotes

How good are markets in predicting real-world developments? Reading the record, it is striking how many calamities that I anticipated did not in fact materialise. Financial markets constantly anticipate events, both on the positive and on the negative side, which fail to materialise exactly because they have been anticipated. It is an old joke that the stock market has predicted seven of the last two recessions. Markets are often wrong.

Proponents of Austrian economics include the fringe economics blog Zero Hedge, which has confidently predicted two hundred of the last two recessions

The stock market has predicted nine out of the last five recessions.

A forecaster should almost never ignore data, especially when she is studying rare events like recessions or presidential elections, about which there isn’t very much data to begin with. Ignoring data is often a tip-off that the forecaster is overconfident, or is overfitting her model—that she is interested in showing off rather than trying to be accurate.

But do you know what happened during this period? Where do we begin ... 1.3 million Americans died while fighting nine major wars. Roughly 99.9% of all companies that were created went out of business. Four U.S. presidents were assassinated. 675,000 Americans died in a single year from a flu pandemic. 30 separate natural disasters killed at least 400 Americans each. 33 recessions lasted a cumulative 48 years. The number of forecasters who predicted any of those recessions rounds to zero. The stock market fell more than 10% from a recent high at least 102 times. Stocks lost a third of their value at least 12 times. Annual inflation exceeded 7% in 20 separate years. The words “economic pessimism” appeared in newspapers at least 29,000 times, according to Google.

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.

because of Marx’s capacity to discover the long-term laws of motion of the capitalist mode of production in its essence, irrespective of thousands of ‘impurities’ and of secondary aspects, that his long-term predictions – the laws of accumulation of capital, stepped-up technological progress, accelerated increase in the productivity and intensity of labour, growing concentration and centralization of capital, transformation of the great majority of economically active people into sellers of labour-power, declining rate of profit, increased rate of surplus value, periodically recurrent recessions, inevitable class struggle between Capital and Labour, increasing revolutionary attempts to overthrow capitalism – have been so strikingly confirmed by history.

There also were the widespread failures of prediction that accompanied the recent global financial crisis. Our naïve trust in models, and our failure to realize how fragile they were to our choice of assumptions, yielded disastrous results. On a more routine basis, meanwhile, I discovered that we are unable to predict recessions more than a few months in advance, and not for lack of trying. While there has been considerable progress made in controlling inflation, our economic policy makers are otherwise flying blind.

The idea that the euro has “failed” is dangerously naive. The euro is doing exactly what its progenitor – and the wealthy 1%-ers who adopted it – predicted and planned for it to do. … Removing a government's control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession. “It puts monetary policy out of the reach of politicians,” [Robert] Mundell explained]. “Without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business.” … Hence, currency union is class war by other means. — Greg Palast, “Robert Mundell, evil genius of the euro.” Unlike

The Fifth Congress had recessed in July 1798 without declaring war against France, but in the last days before adjourning it did approve other measures championed by Abigail Adams that aided in the undoing of her husband—the Alien and Sedition Acts. Worried about French agents in their midst, the lawmakers passed punitive measures changing the rules for naturalized citizenship and making it legal for the U.S. to round up and detain as “alien enemies” any men over the age of fourteen from an enemy nation after a declaration of war. Abigail heartily approved. But it was the Sedition Act that she especially cheered. It imposed fines and imprisonment for any person who “shall write, print, utter, or publish…any false, scandalous and malicious writing or writings against the government of the United States, or either house of the Congress of the United States, or the President of the United States” with the intent to defame them. Finally! The hated press would be punished. To Abigail’s way of thinking, the law was long overdue. (Of course she was ready to use the press when it served her purposes, regularly sending information to relatives and asking them to get it published in friendly gazettes.) Back in April she had predicted to her sister Mary that the journalists “will provoke measures that will silence them e’er long.” Abigail kept up her drumbeat against newspapers in letter after letter, grumbling, “Nothing will have an effect until Congress pass a Sedition Bill, which I presume they will do before they rise.” Congress could not act fast enough for the First Lady: “I wish the laws of our country were competent to punish the stirrer up of sedition, the writer and printer of base and unfounded calumny.” She accused Congress of “dilly dallying” about the Alien Acts as well. If she had had her way, every newspaperman who criticized her husband would be thrown in jail, so when the Alien and Sedition Acts were passed and signed, Abigail still wasn’t satisfied. Grumping that they “were shaved and pared to almost nothing,” she told John Quincy that “weak as they are” they were still better than nothing. They would prove to be a great deal worse than nothing for John Adams’s political future, but the damage was done. Congress went home. So did Abigail and John Adams.

Also, even when people feel they know nothing, they typically know a bit and that bit should tip them away from maximum uncertainty, at least a bit. The astrophysicist J. Richard Gott shows us what forecasters should do when all they know is how long something—a civil war or a recession or an epidemic—has thus far lasted. The right thing is to adopt an attitude of “Copernican humility” and assume there is nothing special about the point in time at which you happen to be observing the phenomenon. For instance, if the Syrian civil war has been going on for two years when IARPA poses a question about it, assume it is equally likely you are close to the beginning—say, we are only 5% into the war—or close to the end—say, the war is 95% complete. Now you can construct a crude 95% confidence band of possibilities: the war might last as little as 1/39 of 2 years (or less than another month), or as long as about 39 × 2 years, or 78 years. This may not seem to be a great achievement but it beats saying “zero to infinity.” And if 78 years strikes you as ridiculously long that is because you cheated by violating the ground rule of you must know “nothing.” You just introduced outside-view base-rate knowledge about wars in general (e.g., you know that very few wars have ever lasted that long). You are now on the long road to becoming a better forecaster. See Richard Gott, “Implications of the Copernican Principle for Our Future Prospects,” Nature

As capitalism matured, he predicted, we would see periodic recessions, an ever-growing dependence on technology and the growth of huge, quasi-monopolistic corporations, spreading their sticky tentacles all over the world in search of new markets to exploit.

But the downward revision of expectations for the future may be still more important than diminished prosperity in the present. And if what you mean by “capitalism” is not just the operation of market forces but the religion of free trade as a just and even perfect social system, you have to expect, at the very least, that a major reformation is coming. The predictions of economic hardship, remember, are enormous—$551 trillion in damages at just 3.7 degrees of warming, 23 percent of potential global income lost, under business-as-usual conditions, by 2100. That is an impact much more severe than the Great Depression; it would be ten times as deep as the more recent Great Recession, which still so rattles us. And it would not be temporary. It is hard to imagine any system surviving that kind of decline intact, no matter how “big.

Although austerity in the more troubled countries was probably unavoidable, given how indebted they were, it predictably pushed them deeper into recession.

It’s hard for a policymaker to predict an outright recession, because a recession will make their careers complicated. So even worst-case projections rarely expect anything worse than just “slow-ish” growth. It’s an appealing fiction, and it’s easy to believe because expecting anything worse is too painful to consider.

Kudlow was optimistic. “There is no recession,” he wrote. “In fact, we are about to enter the seventh consecutive year of the Bush boom.

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.

Indeed, neither the public clamor about the dislocations created by economic globalization nor the massive shocks produced by the financial crisis of 2008 and the ensuing Great Recession have derailed the process of international economic integration. It continues largely unabated, and the predictions of a protectionist surge prompted by the attempts of countries to fence in their economies to protect jobs have been proven wrong. International trade and investment flows continue to grow and to feed the forces that constrain the power of traditional business players.

Our economy is still reeling from the worst financial crisis in generations. Our jobless rate is too high and income growth is too low. But the U.S. recovery has outperformed expectations, history, and most of the developed world. So far, the prophets of doom who have predicted runaway inflation, runaway interest rates, a double-dip recession, a collapse in demand for U.S. government securities, and other horrors for America have been false prophets. I remember half-joking to the President that we had two types of critics attacking us for failing to produce a stronger recovery—people who were blocking our proposals to produce a stronger recovery, and people who believed in unicorns.

If too much time is spent up above, we become uncharacteristically curt with our colleagues, we slip up on our programs, we are rude to waiters, even though one of us (lane seven, little black Speedo, enormous flipper like feet), is a waiter himself. We cease to delight our mates... and even though we resist the urge to descent, it will pass, we tell ourselves. We can feel our panic beginning to rise, as though we were somehow missing out on our own lives. Just a quick dip and everything will be alright. And when we can stand it no longer, we politely excuse ourselves from whatever it is we're doing: discussing this month's book with our book club, celebrating an office birthday, ending an affair, wandering aimlessly up and down the florescent lit aisles of the local Safeway, trying to remember what it is was we came in to buy, (Mallomars, Lorna Doones), and go down for a swim, because there's no place on earth we'd rather be than the pool. Its wide roped off lanes, clearly numbered 1 through 8, its deep, well-designed gutters, its cheerful yellow buoys spaced at pleasingly predictable intervals, its separate, but equal entrances for women and men, the warm ambient glow of its recessed, overhead lights, all provide us with a sense of comfort and order that's missing from our above ground lives.

Our ability to predict recessions isn’t much better. And since big events come out of nowhere, forecasts may do more harm than good, giving the illusion of predictability in a world where unforeseen events control most outcomes. Carl Richards writes: “Risk is what’s left over when you think you’ve thought of everything.

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.