In this comprehensive interview that Neil Howe - author of the must-read book The Foruth Turning - did with his firm, Saeculum Research, he wastes no time in telling us that he thinks expectations of several more Fed rate raises this year are "delusional," because
"The global economy is in no condition to take this medicine. My very safe prediction is that the Fed will either stall or back down."
As John Mauldin annotates, Neil doesn’t stop there. He reminds us that the world geopolitical situation is deteriorating, particularly in the Middle East, and that the US presidential race is a complete crapshoot. At this point, the interviewer chirps in with “You sound a bit more downbeat than most.” Well, says Neil,
If I’m coming in beneath the consensus forecast, it’s because – over the last decade – reality has been coming in beneath the consensus forecast...
[T]here do arise periods lasting ten years or more when the consensus forecast can veer consistently too high or too low. And over the last decade, it has veered too high. Each year since about 2005, forecasters have been predicting a rise in corporate earnings, in GDP, in inflation, in interest rates—in basically all of the vital growth metrics – that is substantially higher than what subsequently occurred. And I’m talking about every forecaster: the IMF, World Bank, Fed, ECB, OECD, and CBO, along with surveys of business economists...
Systematic overshooting by international institutions is leading some observers to talk about “an in-built ‘optimism bias.’”
Which leads the interviewer to quip, “I guess we can’t call it the dismal science anymore,” and to wonder at the reasons for the chronic boosterism. “Oh, I know why it’s happening, says Neil,
The world has fundamentally shifted over the last decade, especially since we’ve emerged from the Great Recession.
We are seeing slower demographic growth, overleveraging, a productivity slowdown, institutional distrust, policy gridlock, and geopolitical drift. But the professional class has been very slow to understand what is going on, not just quantitatively but qualitatively in a new generational configuration that I call the Fourth Turning. They don’t accept the new normal. They keep insisting, just two or three years out there on the horizon, that the old normal will return – in GDP growth, in housing starts, in global trade.
But it doesn’t return.
January 2016 Report
All signs point to 2016 being a momentous year on every front, from the shuddering global economy to the stormy upcoming election season. How will the world look by year’s end? BP interviewed Saeculum Research Founder and President Neil Howe to get his take on what’s ahead. (This is an expanded version of the interview we published as a Social Intelligence report on January 6, 2016.)
NH: If I’m coming in beneath the consensus forecast, it’s because—over the last decade—reality has been coming in beneath the consensus forecast. And this is a new development. Much has been written about the abysmal track record of expert forecasters, whose performance is hard to distinguish statistically from a “blind” forecaster who simply chooses the historical average growth for each indicator. As the late economist Ezra Solomon once remarked, “The only function of economic forecasting is to make astrology look respectable.” But even if most forecasts are pretty random, they are generally unbiased, meaning that they do not systematically err too high or too low over a long time span. The CBO recently confirmed this for its own forecasts going back to the 1970s.