Why macroeconomics is not a science

by on October 31, 2007 at 11:39 am in Current Affairs | Permalink

The housing sector is down twenty percent and the price of oil is flirting with $90 a barrel, maybe $100 to come.  Yet the quarterly growth rate was just reported at 3.9%, led by surges in consumer spending and exports.  It is wrong to think we have turned the corner, but it is also wrong to think the doomsayers have been giving accurate predictions.

The Chieftain of Seir October 31, 2007 at 12:06 pm

Your observation that macro economics is not a science is an undisputable point. But I take issue with singling out of the doomsayers. Over the last quarter the optimists have been shown up as much as the bears.

I don’t think that the last quarter was as bad as the bears thought it was going to be. But I also think part of the surprise on the up side comes from the fact that the government is not properly accounting for inflation.

There has never been a time in my life when the headline inflation figures have been so different from the cost increases that the people around me have to deal with. If there is someone out there whose cost of living has only gone up by the headline inflation figure I would like to meet them.

sa October 31, 2007 at 12:36 pm

I think Roubini Inc, will be proven right sooner than later although their magnitude of catastrophe is probably off by an order of magnitude.

8 October 31, 2007 at 1:12 pm

An older guy was just telling me the story of the uproar when Coke went from a nickel to a dime. People like to complain, but how many of them actually make a budget and know how much they spend every week? Individual price increases can be very visible, but they might not even matter that much. To wit, I read an article on Bloomberg recently in which an analyst said materials prices would have to rise 150% or so to generate 1% of CPI.

Both P&G and Kraft said higher costs are eating into profit however, and P&G will raise prices from 3 to 12%. Therefore I don’t discount the argument and I think gold, oil, and the dollar exchange rate have all signaled inflation for some time. But I’ve heard the recession argument for two years and it has yet to be correct. There are plenty of economists and analysts predicting higher inflation AND higher growth who have been proven correct. The doomsayer arguemnt may be the correct one in the end, but in the real world, missing forecasts for 2 straight years is expensive.

Jason Briggeman October 31, 2007 at 1:48 pm

Way to crush some poor soul’s Geocities page beneath the weight of MR traffic. ;)

Barkley Rosser October 31, 2007 at 5:39 pm

Well, one of the odd things going on here (or more accurately, not going on here) is that there do not
seem to have been substantial increases in gasoline prices recently, despite this pretty impressive
surge in crude oil prices. The usual channel on that one involves gasoline and related prices going
up and then impacting the economy, but so far that has not happened recently anyway, although it is
legitimate to point out that we have had some substantial increases over the last few years that have
not yet tanked the macro engine of the US.

Matt Nolan November 1, 2007 at 1:27 am

M. Hodak, that is a legendary quote.

Data Guy November 1, 2007 at 6:10 am

Do you mean to tell me that the 3.9 rate emanating from the dreary cubilcle hell
for gs 13 PhDs is something we should trust?

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