If PhD economists were serious about getting things right, they would have a tough job. That goes double for PhD economists charged with making policy decisions based on their conclusions.
That’s because economics (like sociology and political science and astrology) isn’t a real science. It’s a pseudo-science. And as is the case with other pseudo-sciences, it’s flat out impossible to discover laws and immutable truths, no matter what anyone told you in your undergrad economics course.
Of course PhD economists aren’t really serious about getting things right, which means that in reality, their jobs are remarkably easy. Here’s the job description: make predictions that are almost never right and then make up any reason you want to explain away the fact that you were wrong. These explanations run the gamut from intentional obfuscation via opaque statistical tinkering (“residual seasonality [7]”) to comically absurd attempts to turn common sense into an excuse for poor outcomes (“snow in the winter”).
And while economists by the very nature of their jobs are already predisposed to getting it wrong almost all the time, that tendency is amplified when economists try to predict what other economists are going to do. We might call this “stupidity squared”, and it’s readily observable in its natural habitat when economists attempt to predict when the Fed will raise rates.
When “forecasters” are surveyed on the timing of a Fed hike (or cut) what you get is one group of economists trying to guess at what another group of economists mistakenly thinks about the direction of the economy, and as you can see from the graph shown below, this is definitely not a case where two wrongs make a right.
[8]
Some color from WSJ [9]:
An overwhelming majority of private forecasters polled think the Federal Reserve will begin raising short-term interest rates next month, capping a historic era of unprecedented monetary stimulus.
About 82% of economists surveyed Friday through Tuesday by The Wall Street Journal said the Fed’s first rate increase will come in September, versus 13% who said the central bank will wait until December.
“I don’t think there’s unanimity, by any means, on the [rate-setting Federal Open Market] Committee,” said Joel Naroff, president of Naroff Economic
Advisors, who said he expects a liftoff in September. But, he said, “I think there’s a general consensus that they need to go as soon as possible.”
Last month, 82% of economists predicted a September liftoff and 15% said the U.S. central bank would wait until December.
In June, 72% said the first rate increase would come in September versus 9% who expected a first move in December.
Summing up everything discussed above is WSJ's Ben Leubsdorf:
Back in January, 75% of economists thought the Fed would have raised rates by now http://t.co/ED29B2vv2n [10] pic.twitter.com/WQ5B3xdo5w [11]
— Ben Leubsdorf (@BenLeubsdorf) August 13, 2015 [12]
And finally, a video representation of economists responding to poor "forecasting"... "I make the weather...":