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Australian Economists Predictions No Better Than Flipping a Coin

samzenpus posted about a year ago | from the best-guess dept.

Australia 290

First time accepted submitter ras writes "The Reserve Bank of Australia did some investigation into the accuracy of their economic predictions — the ones they use to run the country — with less than flattering results. '70 per cent of the RBA's forecasts for underlying inflation for the year ahead were close to the mark, but its predictions of economic growth were less accurate, and its unemployment rate estimates no better than [chance] ... The Reserve Bank employs numbers of people on very high pay and what they're admitting now is that their — all of this so-called science — has produced nothing more than what a roll of the dice could produce.'"

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Economy is not a science. (5, Insightful)

Anonymous Coward | about a year ago | (#42783915)

Economy is not science and won't ever be.

Re:Economy is not a science. (0, Troll)

Mashiki (184564) | about a year ago | (#42783969)

Economy is not science and won't ever be.

That's not what Keynesian economists tell us. Though this is what Austrian economists tell us. Funny that the majority of the world runs on Keynesian economics and is suffering badly for it.

Re:Economy is not a science. (5, Insightful)

The Evil Atheist (2484676) | about a year ago | (#42784061)

Uh, most governments of the world cut back expenditure during recession. That's not what Keynesian economics would suggest as a course of action.

If by "majority of the world" you actually mean the US, then it is more the Randians that are screwing up your country with their mad race to the extreme.

Re:Economy is not a science. (-1, Troll)

Impy the Impiuos Imp (442658) | about a year ago | (#42784359)

Your underpants stains are showing.

They're trying to predict weather. Climate in economics is much more predictable -- there is a strong correlation between economic freedom and wellbeing of the average citizen. Goobers like you don't realize that a "safety net" serves to take the rough edges off this economic powerhouse, instead fancying it is the only thing good that's going on.

If you were actually interested in statistically solid and demonstrated economic models instead of fantasy worlds in your mind that "work" the same way 2 + 2 = 7 works in the mind of a young child, instead of looking at the normal, i.e. failboat east-west political axis, you would at least look at the highly predictive axis of economic freedom, with good protection of property rights on one end and lack of protection, be it from anarchy or warlord or mafia or out of control socoalism on the other.

You believe in a religion, sir. This is why it seems magical and unpredictable to you. I've described the formula, the theory, which successfully makes predictions as to wellbeing and advancement.

I further predict you will ignore it. That's two
successful predictions about you and your economic religion.

Re:Economy is not a science. (4, Insightful)

dkf (304284) | about a year ago | (#42784065)

That's not what Keynesian economists tell us. Though this is what Austrian economists tell us. Funny that the majority of the world runs on Keynesian economics and is suffering badly for it.

A major part of the problem is that the thing that macro-economists study, the economy of the world, changes its behavior in response to the reported observations of the economists. Though the problem happens to some extent with other sciences (from physics to biology to sociology), it's at its most extreme in economics due to the massive incentives for behavioral screwing around. (Micro-economics has fewer problems because the incentives for gaming it are so much smaller.)

The other part of the problem (and your strawman) is that there are several major models for how macro-economics should work, notably the Keynesian models and the Friedmanite models. They give radically different predictions, but they're just models and that's a fact that people often lose sight of. Like all models, they have particular domains of applicability (and different models have different domains!) and are poor reflections of reality. Their weaknesses are also their strength, as they allow the model to be tractable enough to make predictions with them, but they are just models. People tend to lose sight of that basic fact.

So while the right thing to do is to use a model, you've got to keep in mind that the model might be totally wrong in the current situation: if the models predictions don't align with reality, you must change which model you use. That's the scientific approach. Pity the various zealots don't grasp that...

Re:Economy is not a science. (5, Insightful)

alexgieg (948359) | about a year ago | (#42784249)

A major part of the problem is that the thing that macro-economists study, the economy of the world, changes its behavior in response to the reported observations of the economists.

It's worse than that, at least according to Austrian economics. For them, the theoretical basis of macro-economics, or at least of almost all of them, namely, the assumption what money (as a measurement unit) is what matters, is simply false. So, all the models starting from it will suffer no matter what.

The main criticism Austrian economists throw at macro-economics, econometrics etc. is that money isn't an objective unit, it's just a representation of subjective preferences that very from person to person, and within a single person from instant to instant, only resembling something minimally solid, and thus as a fake unit, as a kind of surface effect. Thus, the same way that a sociology divorced of any concept of human psychology is bogus, so is any macro-economics that doesn't base itself entirely on that small subset of human psychology that is micro-economics. True economics is at best a sub-field of psychology, and macro economics is at most a sub-field of sociology.

Austrian economists only do math after they manages to understood reasonably well the psychological mechanisms behind a set of atomic exchanges (not necessarily involving money), provided it shows itself as something that can have calculations done, which most often than not isn't the case.

Mainstream economics doesn't like this, at all. Keynesians, marxists, econometrists etc. all believe they have a unit of measurement, and that they can turn this unit and its measurement into a hard science. They cannot. It's wishful thinking, if not outright bullshit. But it's a bullshit so full of technobabble, so enchanting in its seeming seriousness, that the self-deception simply proceeds, unchecked.

Now, that doesn't means Austrian economics isn't full of bullshit too. It's own model of human psychology they call praxeology is extremely flawed, since it's based on philosophical assumptions more than on actual psychological research. Much of it is quite useful, or at least inspiring, but non-scientific anyway. But what they do very well, and the reason I keep reading them, is their debunking of mainstream economics pseudoscientific assumptions. They are at the top of their game when they take a macro-economics equation, break it down in its main components, and proceed to show analytically how what it describes is pure, glorified nonsense.

So, here's what must be done to really turn economics into the mostly scientific discipline it can ever be: take Austrian criticism of macro-economics, add the state of the art in cognitive sciences, develop an actually valid psychology-based micro-economics from both (it won't be Austrian's praxeology), and then, by way of reductionist thinking, build from then, step by step and floor-by-floor, a bottom-up macro-economics that's based on something actually relevant and universally valid (which "money" most definitely isn't).

Then, and only then, at least a semblance of actually working models.

Re:Economy is not a science. (5, Insightful)

Anonymous Coward | about a year ago | (#42784361)

Uh, general relativity and anything else in physics is just a model, too.
The difference is that physicist have the brains to realize that when their "model" is more than marginally and very rarely wrong you don't have a model, you're just making shit up.
So no, the problem is not that they are "just models", but that what economists use just aren't models in any useful meaning of the word.
Unless you would consider "nothing ever moves" a physical "model" of our world.

Re:Economy is not a science. (1)

Anonymous Coward | about a year ago | (#42784117)

You do know the economy that the RBA was looking after had a big Keynesian pump prime at the beginning of the GFC and never went into recession? You know, basically that big smoking crater almost every economy fell into? That's where China and Australia didnt go - and a lot of that thanks to good ol fashioned Keynsian spending.

And as a result came out of it looking a hell of a lot better while austerity (Austrian economics) shat on any number of countries from a great height?

Re:Economy is not a science. (3, Insightful)

Vaphell (1489021) | about a year ago | (#42784163)

Austrian economics mostly says that people should stop playing with shit they don't understand in the first place (hayekian 'pretense of knowledge'), so they don't have to fix results of their own mistakes, potentially making even more mistakes in the process.
Interest rates are a price signal, you can't just lower them for political gains or whatever and not expect the economy to implode few years down the road when malinvestment levels are simply too high to contain. Is the structural defficiency of the global economy fixed? No, not in the slightest. All i see is balooning sovereign debts and balance sheets of central banks, a recovery concentrated in stock markets. In other words the can got kicked down the road once again.

Re:Economy is not a science. (2, Informative)

arpad1 (458649) | about a year ago | (#42784301)

Umm, so what's the Keynesian excuse for Japan's "Lost Decade" and more recently, America's non-recovery from the it's-all-Bush's-fault recession?

Lots of Keynesian goodness showered on both economies with nothing but massive government debt to show for it.

As for the observation that economics isn't a science, the complete indifference to the scientific method should have made that obvious. The delightful irony is that when the scientific method's applied to the field of economics, the hypothesis being that economics is a science by virtue of its predictive powers, the hypothesis fails.

Re:Economy is not a science. (5, Insightful)

The Evil Atheist (2484676) | about a year ago | (#42784385)

Nothing about the US bailouts was Keynesian. It may look Keynesian, but the underlying motive and effect is US Crazy Randian. What is Keynesian about tax cuts for the rich and attacking the middle class?

As for Japan, it actually isn't that bad. Unlike what economists would like us to believe, perpetual economic growth is stupid and dangerous. Japan kept it mostly level and it wouldn't have been so bad if economists weren't fear mongering about phantoms. Japan may have lost a decade, but it's not as if it plunged into the Dark Ages.

This is the stupid reality economists have people like you believing - that you can live in a city and not die from common diseases, not go hungry, not go homeless, but if you don't have your five wide screen TVs in your McMansion with economic growth every year, then it's the Worst Economy Ever.

Re:Economy is not a science. (5, Informative)

Anonymous Coward | about a year ago | (#42784355)

You are being extremely ignorant of the Australian situation and really are just parroting the government spin. The reason we didn't go into a recession had nothing to do with the government spend. Australia was one of the few countries with extremely strict banking regulations which meant banks could not leverage themselves in the fashion they did in Europe and the US and hence no initial funding crisis, secondly as much as our banks suck they don't use the ridiculous sub prime lending practises that the US practised and thirdly our economy was massively supported by the mining industry shipping ore at record prices to China. What the government did was purely a PR compaign.

Re:Economy is not a science. (1)

Anonymous Coward | about a year ago | (#42784243)

You're being ignorant. The Austrian school (and the Chicago school alike) asserts that economics is totally scientific and permeated by incontrovertible laws and that laissez-faire rent-seeking is the only 'system' that is in accordance with their very selective results from carefully culled data put through functions that 'prove' their 'point'. The Chicago school is the worst of these; the Austrian and Keynesian schools are little better.

They're all little different. In summary, they're all shit and assert that they know the Secret Science of Economy, and that their own particular variation of finance-fueled markets is the only escape from imminent ruin or enslavement.

Re:Economy is not a science. (0, Troll)

Anonymous Coward | about a year ago | (#42784273)

Economy is not science and won't ever be.

That's not what Keynesian economists tell us. Though this is what Austrian economists tell us. Funny that the majority of the world runs on Keynesian economics and is suffering badly for it.

The Austrian school tells us that if we close our eyes, put our fingers in our ears and sing really loudly LALALALALA I CAN'T HEAR YOU!!! the perfectly impartial always rational invisible hand of the free market will fix everything.

Re:Economy is not a science. (3, Insightful)

squiggleslash (241428) | about a year ago | (#42784289)

Keynesianism is barely being used anywhere at the moment. We're in the middle of a major recession and most countries are cutting back spending. Some are even deciding that now is the right time to pay back their debts.

In addition, Keynesianism is both a set of prescriptions and a general model for how the economy should behave. In the latter case, the model has, actually, done an astonishingly good job of predicting the behavior of the economy during this recession.

Re:Economy is not a science. (4, Insightful)

overshoot (39700) | about a year ago | (#42784319)

Funny that the majority of the world runs on Keynesian economics and is suffering badly for it.

Say what? Whatever basis the world's large economies (Europe, the USA, Japan especially) are using, Keynes wouldn't recognize it. Please watch Krugman, deLong, and company rip their hair out over "austerity" before making comments like that.

Re:Economy is not a science. (0)

Rexilion (2828219) | about a year ago | (#42784003)

Well, please, elaborate... This: http://www.sciencemadesimple.com/science-definition.html [sciencemadesimple.com] qualifies it as such. Furthermore, trend prediction is based on econometric models which are build with mathematics (calculus). Hence, one could consider economics as a practical application of mathematics to real world phenomena. This does not differentiate it *that* from computer science, now does it? *** ducks and hides ***

Re:Economy is not a science. (5, Informative)

lxs (131946) | about a year ago | (#42784031)

Don't forget: Astrology relies heavily on extremely accurate and proven celestial mechanics. It is still bunk.
Econometrics (bookkeeping with differential equations) is a real science. Economics is at best a pseudoscience that has built a cargo cult around the results of econometrics.

Re:Economy is not a science. (5, Funny)

Forty Two Tenfold (1134125) | about a year ago | (#42784037)

Trend prediction is statistics, not economics. As for econometrics, this illustrates how it operates:

Three econometricians went out hunting, and came across a large deer. The first econometrician fired, but missed, by a meter to the left. The second econometrician fired, but also missed, by a meter to the right. The third econometrician didn't fire, but shouted in triumph, "We got it! We got it!"

Dilbert (0)

definate (876684) | about a year ago | (#42784017)

Or as a caricature of a Nobel laureate once said in Dilbert...
http://www.youtube.com/watch?v=zJwwAVM1Auc [youtube.com]

I studied economics at university, the only thing I learnt was how little predictive power the theories have, and how they use certain axioms to ensure their rightness, regardless of the outcome. The one thing I liked were the philosophical aspects of economics, such as the Austrian School, except they don't teach those much, as they have little to no predictive power.

Re:Economy is not a science. (1)

Mr0bvious (968303) | about a year ago | (#42784077)

Pfft, 70% - they cook their inflation figures using hedonics to suit what ever outcome they want. It's all a load of nonsense, useless figures and feel good fluff to feed our media brainwashed, critical thinking challenged population. /rant - It's just possible that I don't think highly of my government, perhaps even given up on the entire concept.. Just maybe..

Re:Economy is not a science. (1)

mug funky (910186) | about a year ago | (#42784167)

thing that gets me is... Australia is doing better than almost all the world, and by quite a lot.

given how retarded politics is here, I can only conclude that we are, indeed, The Lucky Country.

that, or Gina Rinehart is holding us all up with her magnificent girth.

Re:Economy is not a science. (4, Insightful)

Mr0bvious (968303) | about a year ago | (#42784225)

I'm not sure we're doing so much better.

Our government has successfully kicked the can down the road with its intervention, but the underlying issues that have plagued the world's financial markets are still present in our financial markets.

Look at how lop sided our economy is. Money is only made in banking/finance and mining, it's not a healthy position...

We are in the middle/end of our biggest commodity boom - these are the super good times, yet we struggle to have a surplus. Our housing has become so expensive that many struggle just to pay their mortgage...

Not feeling too lucky to me.

I don't feel so lucky..

Re:Economy is not a science. (2)

dbIII (701233) | about a year ago | (#42784275)

Given the way many mining companies operate it seems to be sheer luck they can make any money at all. Four weeks paying accomodation and standby rates to a dozen guys waiting to complete the last one hour segment of safety training for instance - a ride in an ore truck they'll never be working within ten kilometres of.

Re:Economy is not a science. (4, Informative)

Rockoon (1252108) | about a year ago | (#42784405)

given how retarded politics is here, I can only conclude that we are, indeed, The Lucky Country.

Nah, this is simply the effect of mobilizing massive amounts of natural resources (the mining.) This is the same basic thing that kept the soviet union up for so long, of course in that case it was state sponsored but the how and why isnt really relevant to the effect.

The problem is that you are just exporting most of the resources. You are getting some instant cash now, but you arent creating any value at all. This is similar to a company that is in trouble selling all its inventory at cost in order to get some much needed operating capital.

Re:Economy is not a science. (1)

Runaway1956 (1322357) | about a year ago | (#42784083)

Why are they picking on Australia, alone? The same can be said for Britain, the US, the EU - didn't we recently have a big banking collapse, with repercussions felt round the world?

When you read "Economists predict", you might as well stop reading. Wander out into the countryside, and jaw with the dairymen, the hog farmers, and the chicken farmers. You'll get more intelligent predictions from any of them.

Re:Economy is not a science. (1)

William Robinson (875390) | about a year ago | (#42784335)

Economy is not science and won't ever be.

Yep. That's why Indians used to use astrogers as Finance Ministers (except for Manmohan Singh.)

Re:Economy is not a science. (0)

Anonymous Coward | about a year ago | (#42784375)

Worse than that, not only is it not real science (it's a guide for sound behaviour, there are certain true statements that can be made about economics [slashdot.org]), but the so called 'mainstream economists' try to confuse you even about actual sciences, like math, so they don't want you even looking at real numbers [slashdot.org].

The fake mainstream 'economists' are political hacks, they just want to keep clinging to power [slashdot.org], so that's what they promote - power, and printing [slashdot.org] money [slashdot.org] is a huge [slashdot.org] power.

The fake "mainstream economists" justify government position on printing money to expand its power [slashdot.org], and then to cover up the inevitable outcome of this behaviour, they shift the blame to the private sector, hitting it with various regulations whose aim is to hide [slashdot.org] the facts, the truth about inflation.

Of-course gov't also uses other means to grow itself, income taxes [slashdot.org], regulations (which are also taxes, when you are regulated and forced to comply, be it a license you have to buy or whatever you have to do to comply, it's a tax). People who attempt to fight the government on the fact that for example income tax is illegal [slashdot.org] end up destroyed [slashdot.org] by the system.

In the meanwhile other consequences of this monetary destruction show up as market gambling [slashdot.org] based on lack of normal yield [slashdot.org] (as an example)

Of-course the problem is that the eventual the day of reckoning seems to never come, but the reason is that having a 'reserve currency' status pushes it much further into the future [slashdot.org] than what would normally happen with a country in that position [slashdot.org].

But there is huge damage that is done to the minds of the people, their understanding of simple economics, they become so confused [slashdot.org], they have no idea what is happening. They just feel that something is wrong, but they can't figure it out, all because of the 'mainstream economists' confusing the shit out of them. These people themselves are not blameless, they are the reason that the government is able to do this damage on the large scale, giving the gov't the tools by voting for politicians who promise [slashdot.org] policies that are extremely [slashdot.org] damaging [slashdot.org] to the economics in the long term [slashdot.org], all being justified as 'social fairness [slashdot.org]'.

Unfortunately all branches of government are no so cooperative that they simply end up rubber-stamping [slashdot.org] whatever the next violation of individual freedom that comes out of the legislative offices.

Meanwhile people who are taxed more and more [slashdot.org] to pay for the unsustainable gov't spending end up leaving to be freer somewhere else [slashdot.org] (and paying less taxes = more freedom, people don't seem to understand what freedom is anymore).

Re:Economy is not a science. (1)

olau (314197) | about a year ago | (#42784413)

I don't agree. Non-science includes things such as making up theories with no way of validating them, or denying evidence logically incompatible with the theory.

But nothing in the scientific method precludes studying a complex field displaying chaotic behaviour. Sure, it's not a walk in the park, and extrapolating results in an evolving society is probably not the safest bet. IMHO, that's where the problem is - you need some kind of safe guard or way of interpreting how realistic the predictions are, and it needs to be easy to understand, not some statistical mumbojumbo.

I've always liked the pattern matching/machine learning computer science way of thinking about this - set apart part of the data set for validation, build an explicit prediction model, train it and you get some easy-to-interpret results like "23% were predicted incorrectly, here's how they look like/are distributed". There's no "under these assumptions which we don't know to which degree hold, there's a number that should be below 5 according to a statistics professor speaking in a general context for the results to be valid".

Economics - The dismal science (0)

Anonymous Coward | about a year ago | (#42783923)

It is the dismal science in more ways than one.

Economics - Simple Vs Complex system modelling (3, Interesting)

FriendlyLurker (50431) | about a year ago | (#42784087)

Wonder if the RBA will now start listening more to one of Australia's most forward thinking economists, Dr Steve Keen [wikipedia.org]. Surprisingly, the vast majority of economist model "the economic system" based on simple linear assumptions. Steve Keen is trying to change all that by modelling the economy for what it is: a complex system. (See this short intro video) [youtube.com]. It is amazing the amount of flak he gets for applying complex system modelling techniques to the world of economics... (see some of his arguments with Krugman)

Here is a link to a presentation [debtdeflation.com] Dr Keen gave to google, interesting stuff.

Well... (5, Insightful)

smegfault (2001252) | about a year ago | (#42783931)

If 'the market' makes decisions based on the predictions of the RBA, it's no wonder the predictions about 'the market' don't often hold up.

No wonder ... (1)

prasadsurve (665770) | about a year ago | (#42783955)

investing in the stock market has become more like high stakes gambling.

Re:No wonder ... (4, Insightful)

KiloByte (825081) | about a year ago | (#42784027)

Except that in this casino, friends of the owner are allowed access to cameras looking into your cards, to react a fraction of second before you do.

Re:No wonder ... (2, Interesting)

Anonymous Coward | about a year ago | (#42784029)

No this is a common misconception. Investing in the stock market is much riskier that normal gambling because the probability distributions are not so well behaved. Generally risk is hidden in the stock market for a long time, and the odds of any event occuring are impossible to estimate without huge errors, whereas when you gamble generally the odds are quite well known and follow a normal distribution. You can work out exactly how much you will lose on average though normal gambling.

Re:No wonder ... (0)

Anonymous Coward | about a year ago | (#42784051)

investing in the stock market, or in real estate, or bonds, or leaving your money in cash, or doing or not doing anything in particular with your saved money, has become more like high stakes gambling.

We're all speculators now, friends...

Re:No wonder ... (1)

c0lo (1497653) | about a year ago | (#42784103)

For stupid people, the lottery. For "sophisticated investors", the stock market. For all and everybody else, taxes and... hold for it...

We're all speculators now, friends...

pension/superannuation funds.Yes, want it or not, we are all speculators ever since the currency was floated.

Re:No wonder ... (2)

lxs (131946) | about a year ago | (#42784095)

My bank balance says otherwise. Then again, I invest in companies, not in the market.
When you go in without knowing a thing about the underlying companies or industries you end up relying on technical analysis or gimmicks like this [onlineinvestingai.com] which as far as I can tell is one magic crystal away from invoking sacred geometry to make market predictions. To paraphrase Robert Anton Wilson: Given a small enough chart and a blunt enough pencil any collection of points can be made to fit into a meaningful pattern.

Re:No wonder ... (0)

Anonymous Coward | about a year ago | (#42784295)

Good for you.

Nonsense technical analysis aside, I've found the markets being heavily twisted, with Goldman-Sachs darlings carrying mile high P/Es and well performing companies being sucked dry. For all intents and purposes, it is a casino. No amount of study or comprehension of every business aspect or the economy will give you an edge over the ones that run the casino.

As it happens, my results in the market were made daytrading (raking in about 1% on capital each day), until rule changes such as margin requirements and settlement days, specifically designed to hinder and work against the independent profitable daytraders, made that impossible.

Re:No wonder ... (1)

Opportunist (166417) | about a year ago | (#42784395)

I dare to disagree. At least where I live, casinos are heavily regulated and if the house cheats you, they get shut down. In this casino, they get bailed out.

Re:No wonder ... (2)

peragrin (659227) | about a year ago | (#42784325)

that's just it.

only about 50-60% of the volume of trades on any given day are actually people investing long term in companies.

The rest are day traders and high frequency traders who hold the stock for less than a 1 minute.

They are the big causes of swings. As they are the ones watching every report. Look at it this way you invest in companies. maybe that company annouces some bad news. Investors may or may not sell within a day later. Day traders and HF traders buy and sell it a million times over in that same period.

Re:No wonder ... (5, Interesting)

gadget junkie (618542) | about a year ago | (#42784159)

investing in the stock market has become more like high stakes gambling.

everything is high stakes gambling. I've been married 21 years, all because I kissed a girl in front of her house. I finished my university the year the Italian government liberalized, after fifteen years, investing abroad, and I knew English, So I was hired as a fund manager. Economy is no different, except the collective feels a need to substitute something for "insufficient data", a noble tradition that continues on olden day shamanism. The big difference is that economist do not pierce their noses with animal bones, no matter how we'd like to perform that operation for them.
That's not to say that all of the establishment is unaware of the pitfalls: many distingushed scholars, like Daniel Kahneman, Nassim Taleb and others, preach the right gospel about our inability to evaluate economic forecasts correctly. Karl Otto Pöhl, the ex president of the German Bundesbank, was once quoted as saying, in response on a question on the future movement of the Dollar-Dmark exchange rate: " the central bank does not make forecasts, and above all not on the future." This is obviously a witticism, but it betrays a keen awareness of the pitfalls of economics as a forecasting tool. The variables are too many, non linearity is the norm, and if you have to utter the phrase "all else being equal", you can throw all the other words to the dogs.
The push to try to forecast the economy, tough, does not come in reality from the instinctive need of humanity to dispel uncertainty: it comes from governments who have to justify dirigistic policies, Tax incentives etc. It's quite hard to impose for example a carbon tax, if the honest answer to the (legitimate) question if it will be a drag or a push on the economy is: "How in hell would I know?"

Karma Whoring actual RBA paper & stuff (5, Informative)

tqft (619476) | about a year ago | (#42783979)

The page with everything linked on it
http://www.rba.gov.au/publications/rdp/2012/2012-07.html [rba.gov.au]
Estimates of Uncertainty around the RBA's Forecasts

We use past forecast errors to construct confidence intervals and other estimates of uncertainty around the Reserve Bank of Australia's forecasts of key macroeconomic variables. Our estimates suggest that uncertainty about forecasts is high. We find that the RBA's forecasts have substantial explanatory power for the inflation rate but not for GDP growth.

Download the Paper [PDF 713K] and the Data.
http://www.rba.gov.au/publications/rdp/2012/pdf/rdp2012-07.pdf [rba.gov.au]
http://www.rba.gov.au/publications/rdp/2012/2012-07-data.html [rba.gov.au]

http://www.rba.gov.au/copyright/index.html [rba.gov.au]

Economics... (5, Insightful)

s.t.a.l.k.e.r._loner (2591761) | about a year ago | (#42784001)

Economics is the only field where one can be considered an expert without ever having once been right.

Re:Economics... (-1)

Anonymous Coward | about a year ago | (#42784123)

I don't know, sounds like the weathermen on TV. Apparently earth's weather is still a total mystery, unless your keen meteorological training detects a hurricane the size of a small country.

Re:Economics... (1)

DirtyLiar (796951) | about a year ago | (#42784179)

There was a small country once that consisted of an apartment in the city of Rome. (Read that once in the CIA's yearly report on the various countries in the world.)

That would be a pretty small hurricane.

Re:Economics... (2)

Runaway1956 (1322357) | about a year ago | (#42784215)

That is completely unfair. Weathermen are right at least half of the time. I mean, the worst weathermen I've ever known of were right half of the time. Good weathermen are right almost all of the time. Decent weathermen are right more than 3/4 of the time. Those people who ONLY REMEMBER when the weathermen were wrong tend to give weathermen a bad name. Despite that, they are mostly right.

Economists? I've never met one, never even heard of one that I trust. Bunch of self important douches, running about, selling the common man on pyramid schemes, ponzi schemes, etc ad nauseum. Screw them all - they belong in prison. Right after we shoot all the lawyers, we'll take care of that little detail. When the economists have been rehabilitated sufficiently, we'll send them to penal farms, and let them raise crops for a living.

Weathermen are bad... (0)

Anonymous Coward | about a year ago | (#42784281)

Now weather.gov, they're pretty damn accurate. It's the local news station that's shit.

The problem seems to come from each station wanting to be able to report that they were the first to warn you about some major storm. Thus, if NOAA predicts an inch of snow, all of the television weatherman predict up to 12 inches. They're much more concerned about failing to predict a storm than they are about incorrectly predicting one when one does not occur.

Even NOAA is a little bad about this. They often show half of the days of the week with the "rainy" icon, just because there's a 50% chance of rain, which kind of neglects the fact that when there's a 50% chance of rain, then if there's any rain at all, it isn't likely to be much. It doesn't make sense since the day is going to be much more like a non-rainy day than a rainy day. Thankfully, though, once you realize this, their reports are actually pretty damn accurate.

Re:Economics... (2, Informative)

zarlino (985890) | about a year ago | (#42784145)

And one where you can be the evil guy if you actually got your predictions right. (I'm thinking Marx here).

Re:Economics... (1)

ShakaUVM (157947) | about a year ago | (#42784257)

>And one where you can be the evil guy if you actually got your predictions right. (I'm thinking Marx here).

+1 funny

Re:Economics... (2)

udachny (2454394) | about a year ago | (#42784269)

You are funny indeed, but you are completely wrong. Marx didn't understand anything about economics, but even worse, he never understood human nature.

Re:Economics... (0)

Anonymous Coward | about a year ago | (#42784341)

but even worse, he never understood human nature.

That is interesting, because most economists doesn't understand that humans can't eat money and that humans only use money as a means to a goal that quite often can be achieved without using money.

Re:Economics... (0)

Anonymous Coward | about a year ago | (#42784377)

I don't think you understand what money really is. It's stored value. If you think you can do something without money that typically is done with money, then all you've really done is used some other form of storage.

Re:Economics... (5, Interesting)

Anonymous Coward | about a year ago | (#42784373)

Ok, you already modded down to -1, but you know what, you did interesting claim I'm interested to answer to. Because it is example how lot of people have gotten their history fastfood in their veins - and ignorance and fear about subjects they don't really understand constructs their world view.

Marx was wierd, true. He was also harsh and cruel in his words (he was sort of armchair anti-nationalist and racist a little bit too), however time he lived in was also harsh and cruel (And Europe has lived trough series of series of devastating wars), so it must be taken into account. Dismissing his work on *trying* to understand human nature trough economics, and why capitalism rules the world as "communist/socialist propaganda" is very hollow. But taking in mind for how long Socialism was painted as big evil of "rightful Western", it's actually no surprise.

He got lot of things right, mostly describing why capitalism works they way it works. Also lot of people dismiss his future predictions as failure of Bolsheviks. There's one huge gap in their knowledge though - Marx predicted, that Socialism will become reality when industrialization and modernization driven by Capitalism greed will remove need for working. Sounds familiar, no? It's not precise prediction, it may even fail, but it gives you food for thought.

What usually people don't know that Socialists split at the beginning of last century - Bolsheviks (as from Russian "majority" or "more than others", t.i. referring to bigger supporter base) rejected reaching required modernization levels driven by greed as basis of Capitalism and stated that they will impose their dictatorship as they claimed that they know how to reach ideal Socialism, and then there was Social democrats, who wanted to work within democratic system (still in it's infancy at that time), as they followed more Marx vision and were against bloodshed - which followed October Revolution (although I would dispute Red Terror as something exceptional - Russia was land of cruel at that time, and Red Terror and White Terror fed each other quite nicely, driven by revenge and fear). Historically, Russia was full of people in despair and almost slave level industrialization made life very miserable, so while Bolsheviks used iron fist to crush dissidents, they had mass appeal, because they promised to solve problems right now.

So essentially Marx did understand economics and (a little bit of) human nature - well, at least for his century anyway. For me he's not a hero, nor villain. He is just a man, who really tried to think about problem we dismiss or even try to understand, because it's so uncomfortable to think or talk about.

Re:Economics... (2)

bill_mcgonigle (4333) | about a year ago | (#42784397)

And one where you can be the evil guy if you actually got your predictions right. (I'm thinking Marx here).

No need to go that far back, look how Schiff [youtube.com] and Paul [youtube.com] were vilified for making accurate predictions based on Austrian (not Australian!) economics and a general understanding of how people in power behave.

But that vilification was by the corporate media, who are generally owned by the big corporations that get/got juicy bailouts from the Federal Reserve, so it's little wonder that they'd go after their political enemies.

Laughing all the way to the bank... (0)

Anonymous Coward | about a year ago | (#42784009)

Yes, perhaps our economists are no better than flipping a coin... But they're no *worse*, unlike some places...

Random predictions are maybe even better (4, Interesting)

chthon (580889) | about a year ago | (#42784033)

A magazine here in Belgium (Humo) did a couple of years ago an experiment about the stock market to see what recommendations of experts were worth.

They had a team of chimpanzees and a team of experts. The results were that the chimpanzees did better than the experts.

Since the chimpanzees can probably be considered a very good random number generator, it seems that it would also probably be better to use random predictions.

Or, as Roger Von Oech would say, "Consult an Oracle".

Re:Random predictions are maybe even better (-1, Troll)

laejoh (648921) | about a year ago | (#42784141)

Hey, it's Belgium you're talking about, how can you be sure that noone ever mixed up the experts and the chimpanzees? They look so alike!

Re:Random predictions are maybe even better (5, Funny)

VortexCortex (1117377) | about a year ago | (#42784165)

They had a team of chimpanzees and a team of experts. The results were that the chimpanzees did better than the experts.

Since the chimpanzees can probably be considered a very good random number generator, it seems that it would also probably be better to use random predictions

So, you're just too damn chauvanistic to see the obvous? What's with you humans? Hell, yet another Monkey just conned another nation (this time Iran) to give them a free ride in a space ship. First into Space, Better at Economics, actually able to live in an environment without destroying its ecosystem... And yet you just keep ignoring the evidence? Why? Because it's different than what you were taught growing up?

I, for one, welcome our Super-Intelligent Ape overloards.

Re:Random predictions are maybe even better (1)

Pro-feet (2668975) | about a year ago | (#42784195)

You call a Belgian a chauvinist? That must be the joke of the day. I bet you don't know any Belgians!

Yes, IAAB (I am a Belgian).

Unfortunately Wall Street experts don't get that (0)

Anonymous Coward | about a year ago | (#42784311)

And neither do I.

I've read the literature and pop books:"A Random Walk Down Wall Street", "Thinking Fast. Slow" and others that mention or did the research that has shown time and time again that the experts do no better than the random chance.

Yet, I still pick stocks the old Ben Graham - Value way and consistently make money - beating the market most of the time.

I'm delusional or I just happen to be the monkey that's flipping heads 20 times straight in a row.

There is also market timing. As an individual, I can do things that pros can't do - like sell half my holdings when the market hits highs for no reason other than QE - like now - and as soon as the Fed stops the flow or slows it down, we'll see some major corrections.

When? I don't know. But I get half way out early.

"I got rich selling too soon."

-Mayer Rothchild

Steeve Keen on the other hand... (3, Interesting)

complete loony (663508) | about a year ago | (#42784041)

... has had some reasonable success [businessspectator.com.au] lately. While I don't know what his long term track record is, he was one of 12 economists recognised [uni-muenchen.de] as having a mathematical model that predicted the oncoming recession.

Re:Steeve Keen on the other hand... (5, Funny)

Anonymous Coward | about a year ago | (#42784073)

Unfortunately, he predicted 20 out of the last 2 recessions.

Re:Steeve Keen on the other hand... (1)

dredwerker (757816) | about a year ago | (#42784121)

Unfortunately, he predicted 20 out of the last 2 recessions.

That was funny shame it was posted as AC :)

Re:Steeve Keen on the other hand... (1)

Pieroxy (222434) | about a year ago | (#42784241)

Unfortunately, he predicted 20 out of the last 2 recessions.

That was funny shame it was posted as AC :)

Huh? Why is it a shame?

Re:Steeve Keen on the other hand... (1)

Vaphell (1489021) | about a year ago | (#42784203)

so? Mood and perception play as big (if not bigger) role as fundamentals do.
It's hard to nail recessions perfectly because as soon as the guys at the central smell approaching contraction they try to immediately paper it over, even with the coordinated help of their colleagues from other countries, so on the surface everything is peachy. Most of the time they manage to push the problem away, at least for some time.

Re:Steeve Keen on the other hand... (0)

Anonymous Coward | about a year ago | (#42784401)

So? I can predict a recession every day and I'll always correctly predict all recessions.
Just optimizing the false negative rate at the expense of endless false negatives is useless.
Or to put it differently: Just because he was wrong the other way round doesn't change that he was 90% wrong, which is simply a joke.

Re:Steeve Keen on the other hand... (0)

Anonymous Coward | about a year ago | (#42784113)

If enough different people predict enough different things chances are good than one of them will happen to have predicted sommething that is about right.

It aplies at least to economists and prophets.

Re:Steeve Keen on the other hand... (1)

dbIII (701233) | about a year ago | (#42784247)

With respect, every single newspaper financial section outside of the USA (and I'm sure a few inside) saw it coming about two years before it happened.

And? (1)

Anonymous Coward | about a year ago | (#42784057)

Congratulations, it turns out cows are not spherical after all.

And unlike "hard" science, where things are fairly constant(or more correctly, their effect is negligible in the over all scheme of things) unless you go to quantum levels, economics has *no* constants. Even something as simple as demand-supply-price relationship is open to alternative interpretations, and not only in highly specific conditions either.

Economics is the unholy child of mathematics and psychology. You are trying to quantify the qualitative. Of course it's going to be a roll of dice.

Re:And? (1)

ryzvonusef (1151717) | about a year ago | (#42784135)

The hell? I dunno why, but that post above was mine, dunno why it got posted as "anonymous." (must have clicked the checkbox accidentally)

But don't forget (0)

Anonymous Coward | about a year ago | (#42784101)

If you want a job in this laughable field, you need years and years of university and tons of contacts... Oh wait, that's probably part of the scam.

Just doing their job (1)

srussia (884021) | about a year ago | (#42784105)

"Projections" by central bank economists are not actually meant to predict outcomes, but rather to manage expectations.

No Shit. (0)

Anonymous Coward | about a year ago | (#42784131)

This is why 'planning' an economy always fails (where always fail is referring to the expected return).

STOP BEGGING FOR REGULATION AND GOVERNMENT CONTROL OF ANY KIND. Yes YOU. It is worse than a coin flip. Always has been, always will be. ALWAYS. Every counter-example that pops into your head is the negatively-weighted-coin hitting heads.

Really puts the lie to... (1)

DirtyLiar (796951) | about a year ago | (#42784153)

... the concept of Economics as a Science.

Though we've known it for years. Children, dogs and octipi beating the "best" finantial minds on Wallstreet. Government and business economic projections that are consistantly off the mark.

Those who think that it is science, has no idea of what being a Science entails.

Economics has way too many unchallenged assumptions, it's theories are often un disproveable, and there are never any real experiments done. Just anecdotal evidence. REAL testing of the theories would take hundreds of years, and require dividing humans into different test groups. And who want's to live their lives inside an experiment that is so likely to have a massive effect on your life, and those of your childern?

We haven't the vision, patience, or the selflessnessto commit ourselves to something that's benifits wouldn't be felt for generations.

The underlying problem is... (1)

Anonymous Coward | about a year ago | (#42784181)

People want to feel in control. We all could die unexpectedly any second for a million of reasons. Yet we make plans for dinner, for next week, next summer vacation...
That's normal people. Now imagine a head of state. You can't do that job without believing that someone - you or at least your buddies - are in control of stuff. Now take something as chaotic as a real-world economy which is unpredicatable. You literally are incapable of accepting it's under nobody's control. So, of course governments (and corporations) will keep listening to economists claiming to be able to predict the economy. As for economists, well they turn to other experts:

Apt quote (1)

Anonymous Coward | about a year ago | (#42784187)

The only function of economic forecasting is to make astrology look respectable.

two up (1)

MrKaos (858439) | about a year ago | (#42784217)

Except we flip two coins in Australia. If the RBA is only flipping one there will be hell to pay.

Fake economics (1, Interesting)

udachny (2454394) | about a year ago | (#42784227)

The entire mainstream industry of the so called "mainstream" economics is fake.

Realise that what economics really is, it's very simple. In reality there isn't actually a need for economists. In the beginning of the 20th century there were maybe 10 people who actually were known as economists, today there are tens of thousands. Why is that and what is it that they do? How is being an 'economist' more important or useful than being say an accountant?

An accountant can be very useful to a company, he really can find ways to make things more efficient, find ways to structure the business in a way that reduces costs. Unfortunately the government forces companies, people not only to pay income taxes (which is the most terrible tax, the most destructive tax you can think of for an economy, you get less of what you tax, you get more of what you subsidise, so if you tax people's work, you get less of it, if you subsidise people not working, you'll get more of that) to be unpaid IRS agents.

In 1942 the government forced employers to start withholding employee's income taxes, and that added more work for an employer, it costs money to do that kind of work. Of-course the government doesn't have a problem adding costs to activities that other people have to incur, but really, you have to be crazy to want to invest and employ people in most of the Western countries today. So accountants can help companies to reduce taxes for example.

What have economists done for the businesses and for people though? Have the economists helped people? As I said, in the beginning of the 20th century USA had maybe 10 economists. The economy of USA was growing, the 19th century was time of slight deflation (prices were slightly falling all the time, the dollar was strengthening, yet more and more productive capacity was added, people invested. USA became largest manufacturer, exporter and creditor nation). Of-course there are tens of thousands of 'economists' today and today USA is the largest in the world and in history of the world debtor nation, with 40-50 Billion USD / month trade deficits, with largest in the world and in history funded debt, unfunded debt, various contingency liabilities.

People like Krugman are suggesting dropping the pretence of solvency and just starting to print 1Trillion dollar coins, etc.

Greenspan was known for this 'Greenspan Put' over the nineties, when his policies of inflation fuelled the stock market bubble and started the housing and the bond bubble. Bernanke is known as the "Helicopter Ben".

None of these people saw the stock market and the housing market bubbles being inflated, none of them understand the biggest gov't credit bubble being inflated right now (bond and USD bubble, really it's the government bubble). Bernanke didn't know the US housing was in a bubble while the bubble was actually bursting already. These 'economists'.

In the meanwhile people who just follow the fundamental principles (normal economics, known as 'Austrian' school, but really it is just common sense economics), people like John Paulson, Peter Schiff, Jim Rogers, Marc Faber, they made millions and more because they just followed the fundamentals.

The fundamentals are: you can't spend more than you earn. Earning = working = selling things in the real market that people want to buy. Economy = production, it does not equal consumption. Consumption is just a trivial consequence of production, without production nothing can be consumed. Production comes first. Production comes out of investments. Investments come out of savings. Savings come out of the difference between some over-production and under-consumption.

Money cannot be printed, printing money is inflation. Printing money does not make more products. Real money IS products. Fiat currency is not real money if it's not backed by anything. Fiat = currency that is mandated by gov't to be accepted, currency by decree.

Real money imposes lending and spending discipline. Fake money (fiat that is printed by gov't) destroys that discipline.

People who fail in their businesses need to be let to fail, they must not be propped up by gov't taking from the productive. The failures will fail anyway, the longer you keep them alive artificially, the bigger will be the eventual failure.

Investment comes from savings, and this is the real credit, credit cannot be pulled out of nothing. Credit that is pulled out of nothing causes inflation, destruction of real purchasing power, eventually rising prices.

Nobody can tell you where the prices will rise exactly as you create more and more inflation, the prices will rise somewhere, this will become the next bubble and it will burst eventually.

If you keep pumping more and more currency or money into a bubble that is bursting, you can keep it up, but you will be destroying ability of the economy to recover.

Debts need to be restructured (eliminated), this will be done either honestly (restructuring, taking a haircut) or dishonestly (inflation). Politicians most of the time (almost always) choose inflation, because that is politically expedient.

Whatever the 'mainstream' economics are, is most likely the wrong thing. As Samuel Clemens said: " Whenever you find that you are on the side of the majority, it is time to reform."

Economics is not an actual science, it's just a guide for sound behaviour. The so called "mainstream economists" want to keep their jobs, want to feel important, so they cling to the power structure that exists, giving it the justification that it wants. Politicians want to print money an thus the whoever ends up agreeing with the politicians and justifying their behaviour becomes known as the "mainstream economist". Whatever the majority of people think they study and understand about economics, especially money and inflation in universities is actually political propaganda.

Whatever in fact you think is the right thing for your household economically is actually what is the right thing for the country. When you have tough economic times you need to find ways to cut spending and if possible to grow your earnings, well the same exact thing applies to nations.

The so called "mainstream economists" exist to confuse you, don't buy any of it. When they tell you that "inflation is good and deflation is bad", don't buy it.

Whatever government sells you as their "economic statistics" is designed for your consumption, it's not real. The inflation levels gov't says exist are not real, they are much higher. The GDP is not real, especially because it's not deflated by a proper inflation number.

An inflated bubble needs to be allowed to deflate, people need to be allowed to fail, companies, businesses, governments need to be allowed to restructure, to shrink in size, to fail, to release the scarce resources so that the debts that cannot be paid are wiped out one way or another, and the best way to wipe them out is not by destroying the currency but by defaulting and restructuring. This allows the economy to rebuild much faster than what happens after the currency gets destroyed.

Bad money drives good money out. People don't want to take bad money, they expect good money. Learn a bit about "Gresham's law"

Learn from people [wikipedia.org] who do understand [youtube.com] the economy enough [blogspot.de] to make money [gloomboomdoom.com] in the economic system where majority ends up losing money.

I think it makes much more sense to look at people who actually make money and learn from them rather than ever bothering with people who never show this ability but have degrees that are subsidised by the system, that are rewarded in this system with positions of high profile, high power and supposed respect, while not helping anybody in actuality except for the politicians to keep their own power.


Some quotes by Ben Bernanke [businessinsider.com]a href="http://new.gloomboomdoom.com/portalgbd/homegbd.cfm"

Here's the one about the Australian economist (2)

dbIII (701233) | about a year ago | (#42784237)

A while back a leading Australian economist was going increase profits in the wool industry by driving the price up. He suggested killing a lot of sheep to make it happen. People listened and there was a massive continent wide cull. Even after that the price didn't change.
He'd forgotten about cotton.

Yes, it really did happen.

The problem isn't so much with economics itself since any understanding of that one way or another was really irrelevant to career prospects as a leading economist, it was instead all about political connections and being a mouth for hire.

Re:Here's the one about the Australian economist (0)

Anonymous Coward | about a year ago | (#42784365)

culling as you call it of Australian sheep had nothing to do with some economist and everything to do with Natural market conditions. If you think farmers listen to some economist as to what to do with their stock then I have a bridge to sell you. When prices are depressed stock becomes too expensive to keep and has a relatively low sale price, the net result is the stock is sent to the abattoir, not because they are trying to cull, but because that is where to get some of the money back to keep the farms running.

Bad Predictors Predict that their Predictions are~ (1)

Whiteox (919863) | about a year ago | (#42784251)

Bad predictors predict that their predictions are bad?

There's a word for that!

When the reporters can't error check (0)

Anonymous Coward | about a year ago | (#42784255)

How confident are you....

"inappropriate and inappropriate"

Is correct

... which would be really bad ... (0)

Anonymous Coward | about a year ago | (#42784265)

... if the economists in question were employed only to make predictions.

As it is, they aren't, so it isn't.

Probably a Good Read (1)

foobsr (693224) | about a year ago | (#42784287)


Quote from the introduction: "The science writer, John Horgan (1995, 1997), has ridiculed what he labels “chaoplexology,” a combination of chaos theory and complexity theory. A central charge against this alleged monstrosity is that it, or more precisely its two component parts separately, are (or were) fads, intellectual bubbles of little consequence. They would soon disappear and deservedly so, once scholars and intellects realized what worthless dross they truly were (or are). As the culminating centerpiece of his argument, Horgan introduced the label, “the four C’s,” which consist of cybernetics, catastrophe theory, chaos theory, and complexity theory." (emphasis mine)


German comedian Volker Pispers knew it before (1)

Opportunist (166417) | about a year ago | (#42784343)

"In earlier days, the riffraff was sitting in the fairground booth in front of a crystal ball. Today they just changed their rags with suits and stand in front of flipcharts."

Understandable (1)

Anonymous Coward | about a year ago | (#42784357)

It's like predicting earthquakes. The underlying mechanisms are understood pretty well, but the specifics depend on microlevel details that can't be abstracted out.

Economics doesn't analyze the actions of individuals and can't predict innovations, fashions, moods and memes. Like earthquakes, "irrational exuberance" or Greek accounting practices can be identified, but whether the bubble bursts tomorrow or 20 years from now, nobody can be sure.

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