Monday, August 6, 2012

The Best Economic Forecasters

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Years ago, when I was an undergraduate at the University of Michigan, I had the chance to attend a talk given by Paul McCracken.

Professor McCracken - who died last week at age 96 - had served as economic policy adviser under five different Presidents, starting with President Eisenhower in the 1950's and ending with fellow Michigan alum Gerald Ford in the mid-1970's.

Here's an excerpt from his obituary in the New York Times last Saturday:

Paul W. McCracken, a moderate Republican who served as an economic adviser to both Republican and Democratic presidents and who led President Richard M. Nixon’s largely unsuccessful effort to tame the rising inflation of the late 1960s and early 1970s, died on Friday in Ann Arbor, Mich. He was 96. 

His death was announced by the University of Michigan, where he had taught for most of his academic career. A wide-ranging thinker, Mr. McCracken was part of a postwar generation of economists who believed that government should play an active role in moderating business cycles, balancing inflation and unemployment, and helping the disadvantaged.

The most memorable part of McCracken's talk that I heard concerned his views on economic forecasting.

Despite his formidable academic background, McCracken was skeptic of economic models. Macro economic projections inevitably went awry, he noted, and he was loath to make recommendations to any President based on forecasts that often were incorrect.

Instead, McCracken said that whenever he wanted to know what was going on in the economy he would wonder over to the Bureau of Economic Statistics.

There he would talk to the men and women who were actually gathering the figures for the myriad of economic statistics the government periodically releases.

These folks, he felt, had the best read on the economy, since they were intimately involved with each data point as it arrived in Washington.

I have often recalled McCracken's views in the decades after hearing him speak.  While our world is much different than the era in which he worked, I continue to share the skepticism that McCracken held towards any macro economic forecasts.