Economists Failed To Predict The Recession But They Say It's Over
The same economic "experts" that completely and utterly failed to forecast the length and severity of the economic train wreck that America is currently mired in are now telling us that the recession is over.
The economics profession is a world apart from other professions such as engineering and accounting to name a few. In those professions, you have to be right on the money in order to keep your job. Not so with economists! Indeed, they get paid for making stuff up!
Throughout the years economists have received untold amounts of awards for their theories and economic forecasts in spite of the fact that most of their theories and forecasts asserted the complete opposite of what actually occurred in the real economic world.
There was one famous economist (who shall remain nameless here) that lost a fortune in the 1929 stock market crash. He didn't see the crash coming, but after it came, he dusted himself off and went on to predict that the economy would soon rebound and gain momentum. But it took over a decade and a world war before the economy rebounded and gained momentum. His forecast was off by only 13 years or thereabouts and to this day, he's still heralded as one of America's greatest economists.
With the above said, it is true today that certain esoteric economic indicators (that only economists, bankers, and financial experts know about) are showing signs of improvement. And if those indicators continue their upward trend, over the course of the next few months, it's much better economic news than what we've been hearing throughout the past two years.
My opinion, and for what it's worth, is that the American economic system has major structural problems. In other words, the integrity of its foundation has been compromised to the point that it requires much rehabilitation.
More than 80 percent of economists believe the recession is over and an expansion has begun, but they expect the recovery will be slow as worries over unemployment and high federal debt persist.
That consensus comes from leading forecasters in a survey by the National Association for Business Economics released Monday.
Forecasters now expect the economy, as measured by gross domestic product, to advance at a 2.9 percent pace in the second half of the year, after falling for four straight quarters for the first time on records dating to 1947. They expect a 3 percent gain in 2010.
The unemployment rate rose to 9.8 percent in September from 9.7 percent, the Labor Department said earlier this month, the highest point in 26 years.
Forecasters expect the unemployment rate to continue to rise, to 10 percent in the first quarter of next year, before edging down to 9.5 percent by the end of 2010.
The recession, the worst since the 1930s, has eliminated a net total of 7.2 million jobs. More job cuts were announced last week.
The housing recovery is one bright spot. Forecasters expect 2010 to be the first year since 2005 that the housing sector will contribute to overall growth.
"The good news is that this deep and long recession appears to be over, and with improving credit markets, the U.S. economy can return to solid growth next year without worry about rising inflation," said NABE President-elect Lynn Reaser, chief economist at Point Loma Nazarene University.
Irving Fisher (February 27, 1867 Saugerties, New York – April 29, 1947, New York) was an American economist, health campaigner, and eugenicist, and one of the earliest American neoclassical economists and, although he was perhaps the first celebrity economist, his reputation today is probably higher than it was in his lifetime. Several concepts are named after him, including the Fisher equation, Fisher hypothesis and Fisher separation theorem.
The stock market crash of 1929 and the subsequent Great Depression cost Fisher much of his personal wealth and academic reputation. He famously predicted, a few days before the Stock Market Crash of 1929, "Stock prices have reached what looks like a permanently high plateau." Irving Fisher stated on October 21 that the market was "only shaking out of the lunatic fringe" and went on to explain why he felt the prices still had not caught up with their real value and should go much higher. On Wednesday, October 23, he announced in a banker’s meeting “security values in most instances were not inflated.” For months after the Crash, he continued to assure investors that a recovery was just around the corner. Once the Great Depression was in full force, he did warn that the ongoing drastic deflation was the cause of the disastrous cascading insolvencies then plaguing the American economy because deflation increased the real value of debts fixed in dollar terms. Fisher was so discredited by his 1929 pronouncements and by the failure of a firm he had started that few people took notice of his "debt-deflation" analysis of the Depression. People instead eagerly turned to the ideas of Keynes. Fisher's debt-deflation scenario has made something of a comeback since 1980 or so.
Fisher was also an ardent supporter of the Prohibition of alcohol in the United States, and wrote three short books arguing that Prohibition was justified on the grounds of both public health and hygiene, as well as economic productivity and efficiency, and should therefore be strictly enforced by the United States government.
SHORTLY after he was elected president, Barack Obama sounded a warning: “We are facing an economic crisis of historic proportions…We now risk falling into a deflationary spiral that could increase our massive debt even further.” The address evoked not just the horror of the Depression, but one of the era’s most important thinkers: Irving Fisher.
Though once America’s most famous economist, Fisher is now almost forgotten by the public. If he is remembered, it is usually for perhaps the worst stockmarket call in history. In October 1929 he declared that stocks had reached a “permanently high plateau”.
To his cost, Fisher remained optimistic as the Depression wore on. He lost his fortune and his home and lived out his life on the generosity of his sister-in-law and Yale. But his work continued. He was prominent among the 1,028 economists who in vain petitioned Herbert Hoover to veto the infamous Smoot-Hawley tariff of 1930.
Yet Fisher’s insights remain vital. They have filtered, perhaps unconsciously, into the thinking of today’s policymakers. On February 8th Lawrence Summers, Mr Obama’s principal economic adviser, called for the rapid passage of a fiscal stimulus “to contain what is a very damaging and potentially deflationary spiral.” His advice bridges Fisher and Keynes.
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Clearlake, California, United States