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Australia Math The Almighty Buck

Australian Economists Predictions No Better Than Flipping a Coin 290

Posted by samzenpus
from the best-guess dept.
First time accepted submitter ras writes "The Reserve Bank of Australia did some investigation into the accuracy of their economic predictions — the ones they use to run the country — with less than flattering results. '70 per cent of the RBA's forecasts for underlying inflation for the year ahead were close to the mark, but its predictions of economic growth were less accurate, and its unemployment rate estimates no better than [chance] ... The Reserve Bank employs numbers of people on very high pay and what they're admitting now is that their — all of this so-called science — has produced nothing more than what a roll of the dice could produce.'"
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Australian Economists Predictions No Better Than Flipping a Coin

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  • by Anonymous Coward on Monday February 04, 2013 @05:04AM (#42783915)

    Economy is not science and won't ever be.

    • by Ryanrule (1657199) on Monday February 04, 2013 @05:17AM (#42783983)
    • by Mr0bvious (968303)

      Pfft, 70% - they cook their inflation figures using hedonics to suit what ever outcome they want. It's all a load of nonsense, useless figures and feel good fluff to feed our media brainwashed, critical thinking challenged population. /rant - It's just possible that I don't think highly of my government, perhaps even given up on the entire concept.. Just maybe..

      • by mug funky (910186)

        thing that gets me is... Australia is doing better than almost all the world, and by quite a lot.

        given how retarded politics is here, I can only conclude that we are, indeed, The Lucky Country.

        that, or Gina Rinehart is holding us all up with her magnificent girth.

        • by Mr0bvious (968303) on Monday February 04, 2013 @06:22AM (#42784225)

          I'm not sure we're doing so much better.

          Our government has successfully kicked the can down the road with its intervention, but the underlying issues that have plagued the world's financial markets are still present in our financial markets.

          Look at how lop sided our economy is. Money is only made in banking/finance and mining, it's not a healthy position...

          We are in the middle/end of our biggest commodity boom - these are the super good times, yet we struggle to have a surplus. Our housing has become so expensive that many struggle just to pay their mortgage...

          Not feeling too lucky to me.

          I don't feel so lucky..

        • by dbIII (701233)
          Given the way many mining companies operate it seems to be sheer luck they can make any money at all. Four weeks paying accomodation and standby rates to a dozen guys waiting to complete the last one hour segment of safety training for instance - a ride in an ore truck they'll never be working within ten kilometres of.
        • by Rockoon (1252108) on Monday February 04, 2013 @07:16AM (#42784405)

          given how retarded politics is here, I can only conclude that we are, indeed, The Lucky Country.

          Nah, this is simply the effect of mobilizing massive amounts of natural resources (the mining.) This is the same basic thing that kept the soviet union up for so long, of course in that case it was state sponsored but the how and why isnt really relevant to the effect.

          The problem is that you are just exporting most of the resources. You are getting some instant cash now, but you arent creating any value at all. This is similar to a company that is in trouble selling all its inventory at cost in order to get some much needed operating capital.

    • Why are they picking on Australia, alone? The same can be said for Britain, the US, the EU - didn't we recently have a big banking collapse, with repercussions felt round the world?

      When you read "Economists predict", you might as well stop reading. Wander out into the countryside, and jaw with the dairymen, the hog farmers, and the chicken farmers. You'll get more intelligent predictions from any of them.

      • by dbIII (701233)

        Why are they picking on Australia, alone?

        Home ground.

      • by Rockoon (1252108) on Monday February 04, 2013 @07:40AM (#42784497)

        Why are they picking on Australia, alone? The same can be said for Britain, the US, the EU - didn't we recently have a big banking collapse, with repercussions felt round the world?

        But there were economists that publicly predicted the burst of the housing bubble and resulting banking collapse... these economists just didnt work for banks because, surprise, banks weren't interested in that sort of information being made public and certainly werent interested in acting in a responsible manner regarding it. The banks certainly werent the ones to get the short end of the stick in the end.

        These predictions werent in a single camp either. Both major schools of thought, the Austrians and Keynesians, were predicting it. The thing to keep in mind is that while the Austrians and Keynesians disagree on quite a few abstract things, that there are still fundamental economic premises that they all agree on.

        The correct observation is not that it wasn't predicted.. its that so few even in the private sector paid any attention to the predictions.

        Its no surprise that the American government didnt pay any attention, even though some members of the government were trying for years to do something about it. Too many in the government are corruptively self-interested -- trading legislation for donations and support -- for there to have been something meaningful done about it. Members of government such as Barney Frank (among many many others in both Republican and Democrat parties) absolutely denied that a housing bubble existed when opposing legislation to do something about it.

        One poster on slashdot suggested that those from the Austrian school stick their fingers in their ears and go "nah nah nah nah I can't hear you" but in actuality it was the government and banks that did that, not economists from any school.

        • by locofungus (179280) on Monday February 04, 2013 @11:23AM (#42786029)

          I don't even think it's a corrupt government.

          The fact is, in the UK (and I believe in the US too) the population would never have allowed a government that actually tried to put the brakes on the housing bubble to survive and would have elected the government that promised them eternally rising house prices and free money to spend, spend, spend.

          There were, indeed, voices of reason inside government, but they only survived because their voice didn't carry.

          The same is happening with oil and climate. We don't know when the crunch will come but we do know that there will be a crunch eventually. Pragmatism says that we should start preparing now and finesse the issue. But the people don't want to hear that and listen to, and elect, the people who promise them eternally flowing oil with no consequences to burning it.

          Tim.

    • by olau (314197)

      I don't agree. Non-science includes things such as making up theories with no way of validating them, or denying evidence logically incompatible with the theory.

      But nothing in the scientific method precludes studying a complex field displaying chaotic behaviour. Sure, it's not a walk in the park, and extrapolating results in an evolving society is probably not the safest bet. IMHO, that's where the problem is - you need some kind of safe guard or way of interpreting how realistic the predictions are, and it

    • by trout007 (975317)

      Economics is definitely a science. You just have to be realistic about what you can and can't do with it. At it's heart economics is about peoples preferences and transactions. Since both of these things change at each individuals whim you can never predict the future. You can predict is what the outcome of actions will be, you just can't predict what action people are going to take.

    • Re: (Score:3, Insightful)

      by Charliemopps (1157495)

      Of course it's science, but it's more about sociology than it is about math like a lot of people think. This was one of the first points Milton Friedman made back in the day when he wrote his book.

      Economics, however, is not all that difficult of a thing to predict. Predicting an individuals behavior is hard, but predicting a large group of peoples collective behavior is fairly simply. The reason we have so much trouble is we have a lot of interfering factors. Mostly from governments. As grain supplies get s

  • Well... (Score:5, Insightful)

    by smegfault (2001252) on Monday February 04, 2013 @05:07AM (#42783931)
    If 'the market' makes decisions based on the predictions of the RBA, it's no wonder the predictions about 'the market' don't often hold up.
  • by tqft (619476) <ianburrows_au&yahoo,com> on Monday February 04, 2013 @05:17AM (#42783979) Homepage Journal

    The page with everything linked on it
    http://www.rba.gov.au/publications/rdp/2012/2012-07.html [rba.gov.au]
    Estimates of Uncertainty around the RBA's Forecasts
    Abstract:

    We use past forecast errors to construct confidence intervals and other estimates of uncertainty around the Reserve Bank of Australia's forecasts of key macroeconomic variables. Our estimates suggest that uncertainty about forecasts is high. We find that the RBA's forecasts have substantial explanatory power for the inflation rate but not for GDP growth.

    Download the Paper [PDF 713K] and the Data.
    http://www.rba.gov.au/publications/rdp/2012/pdf/rdp2012-07.pdf [rba.gov.au]
    http://www.rba.gov.au/publications/rdp/2012/2012-07-data.html [rba.gov.au]

    Licence
    http://www.rba.gov.au/copyright/index.html [rba.gov.au]

  • Economics... (Score:5, Insightful)

    by s.t.a.l.k.e.r._loner (2591761) on Monday February 04, 2013 @05:19AM (#42784001)
    Economics is the only field where one can be considered an expert without ever having once been right.
    • by Zouden (232738)

      See also: "ghost expert"

    • Re: (Score:3, Informative)

      by zarlino (985890)

      And one where you can be the evil guy if you actually got your predictions right. (I'm thinking Marx here).

      • by ShakaUVM (157947)

        >And one where you can be the evil guy if you actually got your predictions right. (I'm thinking Marx here).

        +1 funny

      • And one where you can be the evil guy if you actually got your predictions right. (I'm thinking Marx here).

        No need to go that far back, look how Schiff [youtube.com] and Paul [youtube.com] were vilified for making accurate predictions based on Austrian (not Australian!) economics and a general understanding of how people in power behave.

        But that vilification was by the corporate media, who are generally owned by the big corporations that get/got juicy bailouts from the Federal Reserve, so it's little wonder that they'd go after their

        • What about other economists who made accurate predictions not based on Austrian economics?

          You're being selective. I could very well say Confucian economics made accurate predictions. After all, Confucian philosophy makes a strong case against the "Merchant" class - a group of people who make money by playing around with money.

          If there's been any successfully predictive system, it's the one that says: watch out when financialists get involved, they'll fuck up everything.
      • by Kupfernigk (1190345) on Monday February 04, 2013 @07:51AM (#42784527)
        That noise in Highgate Cemetery is Karl Marx shouting "You see? Everything I predicted about capitalism has come true. It's a pity nobody ever tried socialism, but give it time."
      • Re:Economics... (Score:4, Interesting)

        by dkleinsc (563838) on Monday February 04, 2013 @08:24AM (#42784647) Homepage

        Karl Marx wasn't perfectly right, either: Specifically, he failed to account for (a) socialist societies becoming authoritarian societies, and (b) socialist ideas getting absorbed by capitalist societies. He failed to envision the USSR or the PRC turning out the way they did, and also failed to envision modern Finland, France, and Germany.

        What Marx very accurately described, though, is what capitalism's tendencies are if left unchecked by government action, and what capitalism was doing in his day. A couple of his very accurate predictions:
        1. Foreign trade creates a race to the lowest wages as countries try to out-do each other in oppressing workers to lower the cost of production.
        2. Unregulated banks will eventually collapse and take a lot of other financial institutions and ordinary people with them.

      • by zarlino (985890)

        It's pretty sad that in 2013 just pronouncing Marx's name sparks such a shitload of purely ideological comments from people that never actually read any of his books. Well, I think he must have been onto something if he's still perceived as controversial after 1.5 centuries.

  • by chthon (580889) on Monday February 04, 2013 @05:27AM (#42784033) Homepage Journal

    A magazine here in Belgium (Humo) did a couple of years ago an experiment about the stock market to see what recommendations of experts were worth.

    They had a team of chimpanzees and a team of experts. The results were that the chimpanzees did better than the experts.

    Since the chimpanzees can probably be considered a very good random number generator, it seems that it would also probably be better to use random predictions.

    Or, as Roger Von Oech would say, "Consult an Oracle".

    • They had a team of chimpanzees and a team of experts. The results were that the chimpanzees did better than the experts.

      Since the chimpanzees can probably be considered a very good random number generator, it seems that it would also probably be better to use random predictions

      So, you're just too damn chauvanistic to see the obvous? What's with you humans? Hell, yet another Monkey just conned another nation (this time Iran) to give them a free ride in a space ship. First into Space, Better at Economics, actually able to live in an environment without destroying its ecosystem... And yet you just keep ignoring the evidence? Why? Because it's different than what you were taught growing up?

      I, for one, welcome our Super-Intelligent Ape overloards.

      • by Pro-feet (2668975)
        You call a Belgian a chauvinist? That must be the joke of the day. I bet you don't know any Belgians!

        Yes, IAAB (I am a Belgian).
    • They had a team of chimpanzees and a team of experts. The results were that the chimpanzees did better than the experts.

      That experiment was so unfair! They actually picked really smart chimpanzees.

      Anonymous
      Desk #2, Room 24, Level 16,
      Department of Economics,
      William H. Sewell Social Science Building
      1180 Observatory Drive
      Madison, WI 53706-1393
      University of Wisconsin

    • by Inda (580031)
      We do the same on a football forum against a very well known football pundit.

      We have a chimpanzee algorithm:

      Top four teams in the league always win.
      Bottom four teams in the league always lose.
      With other teams, the highest in the league always wins.

      The chimp wins every season and has all the virtual bananas he can eat. The well known football pundit gets a house, car, food on his plate...
  • by complete loony (663508) <Jeremy,Lakeman&gmail,com> on Monday February 04, 2013 @05:29AM (#42784041)
    ... has had some reasonable success [businessspectator.com.au] lately. While I don't know what his long term track record is, he was one of 12 economists recognised [uni-muenchen.de] as having a mathematical model that predicted the oncoming recession.
    • by Anonymous Coward on Monday February 04, 2013 @05:37AM (#42784073)

      Unfortunately, he predicted 20 out of the last 2 recessions.

      • Unfortunately, he predicted 20 out of the last 2 recessions.

        That was funny shame it was posted as AC :)

        • by Pieroxy (222434)

          Unfortunately, he predicted 20 out of the last 2 recessions.

          That was funny shame it was posted as AC :)

          Huh? Why is it a shame?

      • by Vaphell (1489021)

        so? Mood and perception play as big (if not bigger) role as fundamentals do.
        It's hard to nail recessions perfectly because as soon as the guys at the central smell approaching contraction they try to immediately paper it over, even with the coordinated help of their colleagues from other countries, so on the surface everything is peachy. Most of the time they manage to push the problem away, at least for some time.

    • by dbIII (701233)
      With respect, every single newspaper financial section outside of the USA (and I'm sure a few inside) saw it coming about two years before it happened.
      • by Rockoon (1252108)
        Exactly. It isnt that economists that couldn't predict it, its that economists working for banks and governments wouldn't admit it.
  • "Projections" by central bank economists are not actually meant to predict outcomes, but rather to manage expectations.
  • The only differences between economists and fortune tellers are the uniform and the pay scale.

    Also, this poster is perfectly accurate: http://www.despair.com/economics.html [despair.com]

  • by MrKaos (858439)
    Except we flip two coins in Australia. If the RBA is only flipping one there will be hell to pay.
  • by dbIII (701233) on Monday February 04, 2013 @06:23AM (#42784237)
    A while back a leading Australian economist was going increase profits in the wool industry by driving the price up. He suggested killing a lot of sheep to make it happen. People listened and there was a massive continent wide cull. Even after that the price didn't change.
    He'd forgotten about cotton.

    Yes, it really did happen.

    The problem isn't so much with economics itself since any understanding of that one way or another was really irrelevant to career prospects as a leading economist, it was instead all about political connections and being a mouth for hire.
  • THE RISE AND FALL OF CATASTROPHE THEORY APPLICATIONS IN ECONOMICS: WAS THE BABY THROWN OUT WITH THE BATHWATER?

    Quote from the introduction: "The science writer, John Horgan (1995, 1997), has ridiculed what he labels “chaoplexology,” a combination of chaos theory and complexity theory. A central charge against this alleged monstrosity is that it, or more precisely its two component parts separately, are (or were) fads, intellectual bubbles of little consequence. They would soon disappear and de

  • "In earlier days, the riffraff was sitting in the fairground booth in front of a crystal ball. Today they just changed their rags with suits and stand in front of flipcharts."

  • However some were not. Be fair; the headline's not

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