Monday, November 3, 2008

Still Alone

Most economists have a bleak outlook for next year. Their expectations are very different from mine.

They forecast less consumption. I forecast consumption to be below trend, so we more or less agree on that. Where we disagree is on business investment. They make a big deal about banks' (supposed) not lending. I emphasize that investment resources have been freed up from the housing and consumption sectors and are now available for business investment.

They claim that employment will fall markedly. I emphasize that baby boomers will delay their retirements -- which has the opposite effect.

I emphasize that forecasts like theirs are logically inconsistent with the commentary given about the housing boom -- commentary given by many of the same economists.

Many economists have much more experience with forecasting than I do. IMO, their forecasting models are not appropriate for today's very unusual situation, even though those models may have worked in the past. Today's situation is when an academic economist's opinion is needed -- that's me.

My short track record is pretty good. Without much company, I correctly predicted that the Treasury stock purchases would be neutralized by bank financial transactions. Also without much company, I correctly predicted that non-residential structures investment would actually grow even while residential structures investment plummeted. I also predicted that housing prices would continue to fall, although others also predicted this.

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