Why Are Economists So Often Wrong?

Rich Kozlovich

Recently my friend Maury Siskle sent me an article entitled, Next Bear Market Will Be "Worst in Our Lifetime", saying:

 "This week's dramatic stock market sell-off has raised concerns of an impending bear market, which, according to legendary investor Jim Rogers, will be more catastrophic than any other market downturn that he has lived through."'

"When we have a bear market again, and we are going to have a bear market again, it will be the worst in our lifetime," Rogers told Bloomberg. According to the veteran investor, that will happen because even more debt has accumulated in the global economy since the financial crisis, especially in the US. "

Okay, that's probably as good a guess as any, but what I found interesting is his comment:

"He said he was light on US stocks due to expectations of a forming bubble, and that Japan, China and Russia offered better investment opportunities."

Well, for some time I've been predicting a worldwide economic downturn by or around 2020, and debt load is one of the primary reasons. The article is impressive until the writer tells everyone that Japan, China and Russia offered better investment opportunities.

At that point he went off the economic sanity grid. None of those countries are natural capital generators. Without a strong U.S. economy, they will drown in their debt and regulations, and they will not be able to recover from what I believe will turn into a depression for the rest of the world.

The only country that can feed itself, fuel itself, arm itself and defend itself without any assistance from anyone else in the world is the U.S.

If the world's economy plunges into a depression, Russia and China are going to collapse into anarchy and will Balkanize with war lords as leaders. Japan will be stunningly poor and people will be starving just as they were after WWI.

I don't know who wrote this article but he must be a college educated economist......and like most of them......they're just fancy bookkeepers and they're clueless. Ask 100 economists a question and you'll get 100 different answers.

Here's what economists do:

"Economists study how society distributes resources, such as land, labor, raw materials, and machinery, to produce goods and services. They conduct research, collect and analyze data, monitor economic trends, and develop forecasts on a wide variety of issues, including energy costs, inflation, interest rates, exchange rates, business cycles, taxes, and employment levels, among others."

Well, that certainly sounds impressive, but why then are they so often wrong? And the answer is simple. Economics is stunningly complex. There are approximately seven billion people living today, how do you factor in seven billion variables? So what does that make economics? Bad science!

The variables are so complex anyone who claims they can accurately predict future trends is lying to you, and many are paid to say what their employer wants them to say - including those paid by government. Actually - especially those paid by government. And of course there are the ideologues, and none of the stuff economists are supposed to be using for their evaluations mean anything to them.  Ideology makes smart people dumb.  

It seems to me there's another factor that's always left out of these equations. History! Every culture has an historical paradigm that acts as a driving force or a brake on what they do, or can do. It isn't all about bookkeeping. It's about people, and that makes prediction, especially about the future, really hard.

But historical patterns keep repeating within cultures, and economists don't ever seem to get that.  The United States is the only truly great capital generator in the world, and can generate that capital without the rest of the world if and when it becomes necessary. That's the social paradigm of America and it's history.   

Not Russia, not China and not Japan.  Their history, their social paradigm, their geography and their demography all work against them without the United States economy. 

As for my predictions? Take them for what they're worth or ignore them entirely if it pleases you, but I base my predictions on the four components already mentioned: history, societal paradigms, geography and demographics. I leave bookkeeping to the economists.