“Social sciences will never be able to predict human behavior beyond giving probable results, since a significant element, even in the aggregate, is unpredictable.” Em. Prof. Robert M. Craig, Northwestern University, Lake Geneva, Wis.

“But the FDIC said I was a negligent banker (which I denied in my settlement agreement), because I should have known the housing bubble was going to burst and the private MBS markets were going to collapse in 2007!!! I think the FDIC were bad guys (the way they treated me and others) and stupid, right?”, Mike Perry, former Chairman and CEO, IndyMac Bank

June 29, 2016, Opinion, The Wall Street Journal

Opinion

Why It’s Hard to Make Economic Predictions

Economic forecasts have been bogus all my life.

Regarding Roger Altman’s “The End of Economic Forecasting” (op-ed, June 24): I have never seen a time of forecasting reliability. Since the 1960s, every five years or so the same old chart has come out showing the world running out of oil in a few decades. Never happened. Forecasters failed to forecast the late 1970s inflation. The year 2000 market bubble burst. The 2007 housing bubble burst. Economic forecasts have been bogus all my life.

Mr. Altman states that 80% of oil trading takes place between financial institutions. Sounds like this makes for a highly liquid market. He also seems to say, or at least infer, that lower than expected oil prices are due to financial trading. Even if financial trading increases volatility in a market, which he presents no case for, I doubt that it supplants the law of supply and demand in its pricing in the longer term, or even the shorter term. Prices are low now because there is more supply now, relative to demand, than in the past.

Mr. Altman says: “Finance now represents the most powerful force on earth . . . and governments are increasingly at its mercy.” Well hallelujah! It’s about time governments get forced out of the business of currency manipulation.

He states that 80% of CFOs sacrifice long-term economic value to meet short-term performance goals. That simply changes the factors of a forecast, not necessarily the predictability of the results.

Kim C. Korn

Woodbury, Minn.

Mr. Altman blames “finance” for both causing a series of forecast misses (as if economic policy ought to serve the ends of forecasters) and for a host of other issues. Volatile oil prices are blamed on finance and not on the radical supply disruption caused by the introduction of hydraulic fracking. Short-term thinking on the part of corporate executives is blamed on stockholders rather than on a deficiency of executive courage and communication skills. Does he really believe that investors prefer strategies that destroy economic value? The problems of China and commodity-centered economies are attributed once again to finance rather than the problems associated with overly centralized economic mismanagement in the case of the former and an overdependence on a historically volatile asset class in the case of the latter.

Jim Reardon

San Diego

Mr. Altman omits the most important reason for the difficulty in making predictions by the social sciences: their subjects are comprised of people who are free. Social sciences will never be able to predict human behavior beyond giving probable results, since a significant element, even in the aggregate, is unpredictable.

Em. Prof. Robert M. Craig

Northwestern University

Lake Geneva, Wis.

Mr. Altman’s assignment of blame to financial speculators for the inaccuracy of experts, not material cause, is a mini-tour through the mind-set of someone in the revolving door between the Treasury and investment banking. To wit: If elites, such as myself and rulers of China, Brazil and Russia, are wrong about the future, it must be because of speculators. Talk about rounding up the usual suspects!

Did “financial speculators” really oust Brazil’s president, Dilma Rousseff? Wasn’t this a constitutional action after corruption was uncovered? Did “they” really force commodity prices down? And to whom is the notion that China’s dictatorship can dictate stock prices not ridiculous? Particularly backward is the insinuation that autocrats in China and Russia, and an ex-Marxist guerrilla in Brazil, were all undermined by free capital markets rather than mismanagement born of bad policy and forecasts.

Kenneth A. Stein

Evanston, Ill.