Harvard Business Publishing

The current economic crisis is further evidence that nobody really knows the future of our domestic or global economy. While there are a few economists who predicted aspects of the current situation (Robert Schiller of Yale predicted a housing bubble collapse in 2005, and Nouriel Roubini of NYU has predicted a systemic financial collapse for several years), nobody predicted all the manifold aspects of this crisis and how they would come together.

And some futurists got things spectacularly wrong. Remember, for example, Kevin Hassett and James K. Glassman, who wrote the book Dow 36,000 in 1999? Only a few more declines like those of last week, and they'll be off by a factor of 10. With such economic perspicacity, perhaps they should be working for the McCain and Bush economic teams. Wait, this just in -- according to an article in Monday's NY Times, that's exactly what they're doing. As Monty Python used to repeat, "Say no more..."

And how about Peter Schwartz and Peter Leyden, authors in 1997 of The Long Boom? This article, first published in Wired magazine and then expanded into a 1999 book (with a third author, Joel Hyatt), argued that things were just going to keep getting better and better. With information technology and the Internet, and the expansion of democratic capitalism, how could the economy do anything but grow? Well, I suppose it could also shrink.

I think that people should be held accountable for their predictions. One hopes they will be embarrassed enough to refrain from wasting our time and trees on future predictions. Maybe we should construct a giant prediction market, and force futurists to buy options on their predictions coming true.

I suppose it's useful for futurists to be provocative, but we should recognize that the economy is too complex and interconnected for anybody to really know what's going to happen with it. Economists don't have good models that reflect all the complexity, so they are just guessing like anyone else. Those that don't employ data are even worse -- there is nothing to constrain them at all.

Because the economy is highly interconnected these days, the swings that do happen often turn out to be violent. Today there's a 900-point upswing, tomorrow probably a 900-point downswing -- and that's just the Dow. It's probably safe to predict dramatic change -- we just don't know the direction. Futurists don't typically predict small change anyway, because it wouldn't be interesting to read about. But economists do -- their predictions are frequently aggregated and compared, so anyone whose predictions stand out gets beaten down. Other than Roubini, who doesn't issue numeric forecasts, I don't know of any who predicted how truly awful this year's economy would be.

Of course, it's not just economic experts that have a poor record of prediction. Philip Tetlock's research on political experts (summarized well in a Louis Menand review in the New Yorker) suggests that they also have a very poor track record. If you want accuracy, better stick to history.