Wednesday, May 27, 2009

Now We're In Trouble

This was the headline on this morning, "Economists: Recession to end in 2009"  As a profession, economists have a terrible track record at predicting what will happen.  That is because the economy is an incredibly difficult system to predict.  Most real top level academic economists do not make these type of predictions, because they understand how unlikely they are to get it right.  The economy is a complex adaptive system, and good economics involves working at understanding how this system evolves over time, not making short-term predictions about levels of GDP growth and unemployment.

There is a great link in the CNN article referenced above.  It is a comparison between the current recession and the Great Depression, showing how silly it actually is to compare the two.  For example, 50% of banks in the US failed in the early 1930's, whereas less than 1% have failed during the current crisis.