Friday, January 13, 2012

Turn that recorder off!: the danger of recordable predictions

There's been a minor amount of giggling about the lack of concern on the economy expressed in just-released transcripts of dicussions of Federal Reserve's governing board in 2006. From the New York Times, a bit of a summary of the conversations:
The general consensus on the board, summarized by Mr. Geithner, was that problems in the housing market had few broader ramifications. “We just don’t see troubling signs yet of collateral damage, and we are not expecting much,” he said at the September meeting.  
Mr. Bernanke initially agreed, telling colleagues at his first meeting as chairman, in March, “I think we are unlikely to see growth being derailed by the housing market.” As the year rolled along, however, Mr. Bernanke increasingly took the view that his colleagues were too sanguine.” I don’t have quite as much confidence as some people around the table that there will be no spillover effect,” he said. 
Some Fed officials argued that a housing slowdown would be good for the broader economy. “I really believe that the drop in housing is actually on net going to make liquidity available for other sectors rather than being a drain going forward, and that will also get the growth rate more positive,” Ms. Bies told colleagues at the committee’s June meeting. Ms. Bies could not be reached for comment Thursday. 
And even Ms. Yellen did not believe that the problems in the housing market would have broader consequences. “Of course, housing is a relatively small sector of the economy, and its decline should be self-correcting,” she said.
I feel for these folks. They're top-level economists and they missed signs of the largest recession of our generation. It must be embarrassing to be so publicly (to an extent) wrong. People tend to defend themselves from these problems by not making hard-and-fast predictions unless they're really, really sure or not being on record with a prediction in the first place. That's smart.

Of course, most folks aren't very good at predictions. I'm on record with a very good friend of mine from graduate school saying that vorinostat wasn't likely to make it to market -- oops. I predicted a U6-like (part-time + postdoc + unemployed) rate for chemists at 12% in 2009; it was at 9.6%. Even the most powerful DOOOOOOOOOMers can be wrong in their time horizons.

I wonder what it would be like if every utterance in conference rooms about a biological target, a series of hawt lead compounds, the yield of a particular chemical step or the identity of an impurity were recorded and transcribed, only to be released 6 years later. I'm guessing meetings would be a lot shorter in those conference rooms and predictions would fall to zero. ("XYZ8675309? Yeah, that compound will make it through tox -- or it won't.")

6 comments:

  1. With all of this in mind, the Saints are going to take the 49ers, Patriots are going to beat the Broncos like a drum, the Texans will overcome Baltimore and the Packers will beat the Giants in revenge for the 2008 NFC Championship game.

    ReplyDelete
  2. Getting back to the subject at hand (EMPLOYMENT!), every time we make a hire, we are making recorded predictions. Similarly, every time you take a job, you are making a recorded prediction.

    I disagree with you on Baltimore.

    ReplyDelete
    Replies
    1. Interesting point on that, John.

      Delete
    2. "It must be embarrassing to be so publicly (to an extent) wrong." Lucky for them they still all have high-paid, powerful positions guiding our economy then.

      Delete
  3. @CJ, @John - The part about being wrong publicly, and on written record, reminded me of David Sinclair's reaction to news swirling around Prof. Das / resveratrol yesterday. This is after Sinclair claimed he "barely knew" Dr. Das.

    http://retractionwatch.wordpress.com/2012/01/12/so-how-peripheral-was-dipak-das-resveratrol-work-really/

    Sinclair: "I had not expected my off-the-cuff remarks to be printed. I will be more careful"

    Also, I agree with John. BAL over HOU by at least 7. You're also right on NO and PATS, but wrong on NYG....they may yet pull out the upset.
    (*caveat - I'll take the Gregg Easterbrook oath 'All predictions wrong or your money back')

    ReplyDelete
  4. I am reminded of the famous joke about economists:

    If you ask five economists a question you'll get five different answers--Six answers if one of the economists is from Harvard.

    Perhaps there should be a joke corollary for that:

    If a policymaker asks five government economists a question, he will get five different answers, but all of them will suggest that the policymaker is correct.

    ReplyDelete