Elliott: “An Economic Recovery Based Around High Debt Is Really No Recovery At All”

Monday, September 17, 2018
By Paul Martin

by Larry Elliott via The Guardian,
Mon, 09/17/2018

As a profession, economists are absolutely hopeless at forecasting recessions. That is true not only in the years before a severe downturn. It happens when the storm is about to break. Back in 2008, the Bank of England failed to predict the biggest postwar slump in the UK’s history even after it had started.

This less than impressive record should act as a cautionary note in the current circumstances when the 10th anniversary of the collapse of Lehman Brothers has generated a thriving cottage industry devoted to predicting when the next crisis will occur. The honest answer is that nobody really knows. Meteorology has improved in the past 40 years, economic forecasting has not. When a weather forecaster says a hurricane is imminent, the public does well to take notice. When an economic forecaster gives a similar warning, the chances are that it is already too late.

This might be about to change. Just as satellite technology has made weather forecasting far more accurate, so machine-learning algorithms could bring economic forecasting into the 21st century.

Rickard Nyman and Paul Ormerod have compared economic forecasting by humans and machines in both the US and the UK, and come up with some stark conclusions. At the start of 2008 the survey of professional forecasters in the US failed to predict that within a year their country would be in a deep recession. Had US policymakers relied on machine-learning algorithms they would have been much better prepared for the trouble ahead. Even more impressive results using machine learning were obtained for the UK.

The Rest…HERE

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