The gloomy CBO forecast offers little new insight
The Congressional Budget Office, a generally non-politicized agency, released its latest forecast two days ago. It is not at all optimistic, and generally speaking takes all of the characteristics of our economy today and extrapolates them over forward looking ten year period. As the Great Recession has not led to anywhere near a great recovery that is apparent in the economy as a whole, nothing groundbreaking happens in the foreseeable future. It's truly a bleak outlook.
A Friday NYT business section article by Floyd Norris does what is seen here as a good job looking at both the CBO's analysis in some modest detail and the CBO's mixed track record. There's no need to repeat that here. The focus here is on the rationale behind the CBO's conclusions.
Forecasting has always been a tough game for both government analysts and for investors. There is a mentality that often leads to overly cautious conclusions. To be cautious and negative is often seen as being honestly analytical and forthright. There are some who see minimal downside to that, as while there can be significant opportunity cost that can be huge for a government or investor who follows these forecasts, nominal dollars lost are contained. Those forecasts that are optimistic can risk being called naive, or the writer or institution responsible being called a fool, plus following optimistic forecasts has the potential to lead to real monetary loss of some consequence.
During my working days I regularly attended the annual Montgomery Securities Financial Services Conference in Newport Beach, CA, not bad duty. Each year they did a poll that all attendees could participate in, and that poll was to forecast the Dow close 12 months forward with the winner being recognized at the next conference and rewarded with premium bottles of California wine. With more than 200 institutional investors attending, representing hedge funds to pension funds to mutual funds, and a handful of riff-raff like myself representing their corporate name to those investors, the poll had a large following. Amazingly, I won the poll three years in a row, 1992, '93, and '94, just by putting in the highest number possible while being remotely within the realm of reason. It seems that all of the investors, most of whom were on the surface far more knowledgeable than yours truly, were constrained by the negative implications of being seen as too positive. Since that was not an issue for me, I owned the high end going with my intuition(no fool, I gave part of my wine haul each of those years to my boss, the CFO).
I tell this old tale because it is relevant relative to the CBO report, at least in my tangled mind. How can the CBO look ten years forward and see no innovations, no significant changes in this society that focuses on entrepreneurship and technological change. Heck, the immigration issue may be addressed during a ten year period and that could be a major boost for the economy. I don't get it. The CBO could be right but if so it will more likely be due to global events beyond their scope and not due to a lack vitality in the U.S.for that long of a period.
A Friday NYT business section article by Floyd Norris does what is seen here as a good job looking at both the CBO's analysis in some modest detail and the CBO's mixed track record. There's no need to repeat that here. The focus here is on the rationale behind the CBO's conclusions.
Forecasting has always been a tough game for both government analysts and for investors. There is a mentality that often leads to overly cautious conclusions. To be cautious and negative is often seen as being honestly analytical and forthright. There are some who see minimal downside to that, as while there can be significant opportunity cost that can be huge for a government or investor who follows these forecasts, nominal dollars lost are contained. Those forecasts that are optimistic can risk being called naive, or the writer or institution responsible being called a fool, plus following optimistic forecasts has the potential to lead to real monetary loss of some consequence.
During my working days I regularly attended the annual Montgomery Securities Financial Services Conference in Newport Beach, CA, not bad duty. Each year they did a poll that all attendees could participate in, and that poll was to forecast the Dow close 12 months forward with the winner being recognized at the next conference and rewarded with premium bottles of California wine. With more than 200 institutional investors attending, representing hedge funds to pension funds to mutual funds, and a handful of riff-raff like myself representing their corporate name to those investors, the poll had a large following. Amazingly, I won the poll three years in a row, 1992, '93, and '94, just by putting in the highest number possible while being remotely within the realm of reason. It seems that all of the investors, most of whom were on the surface far more knowledgeable than yours truly, were constrained by the negative implications of being seen as too positive. Since that was not an issue for me, I owned the high end going with my intuition(no fool, I gave part of my wine haul each of those years to my boss, the CFO).
I tell this old tale because it is relevant relative to the CBO report, at least in my tangled mind. How can the CBO look ten years forward and see no innovations, no significant changes in this society that focuses on entrepreneurship and technological change. Heck, the immigration issue may be addressed during a ten year period and that could be a major boost for the economy. I don't get it. The CBO could be right but if so it will more likely be due to global events beyond their scope and not due to a lack vitality in the U.S.for that long of a period.
posted by John Borden at 10:47 AM
0 Comments:
Post a Comment
<< Home