Over at The Weekly Standard, Andrew
Ferguson tucks into a new report by the Organization of Economic
Cooperation and Development (OECD) cataloguing that group’s own
awful predictions about economic growth before, during, and after
the global fiscal crisis. A snippet:
In May 2010, for example, with one-third of the calendar year
already over, the OECD economists predicted the U.S. economy would
grow 3.2 percent for the year. As it happened, gross domestic
product grew 1.7 percent. Note that this is not a small error. That
1.5 percentage point spread between the two numbers means the
original projection was off by nearly half. It’s as if you thought
you saw a car go by at 60 miles per hour while it was actually
going 30.
Read
Ferguson’s whole take, which stresses that economists’
“detachment from the real world of human activity is matched only
by their enormous influence over it, and by their unearned
assumption that this arrangement is well deserved.” [Hat
tip: Hot Air]
Take a few moments, too, to run through the OECD report itself,
which is online here. Economics may be called the “dismal
science,” but the folks at the OECD (not to mention many boosters
of President Barack Obama) are forever seeing the future through
rose-colored scenarios: “GDP growth was overestimated on
average across 2007-12,” notes the report, “reflecting not only
errors at the height of the financial crisis but also errors
in the subsequent recovery.”
In other words, don’t stop believin’ kids. Among the problems
identified was the OECD’s belief that highly regulated economies
would respond to the crisis better precisely because of
regulations:
Larger forecast errors over 2007-12 have occurred in
countries with more stringent pre-crisis labour and product
market regulations. In part this may reflect the weight given at
the time to pre-crisis evidence that tight regulations could
help to cushion economic shocks, together with insufficient
attention being paid to the extent to which
tighter regulations could delay necessary reallocations across
sectors in the recovery phase. A third possibility is that it
reflects a correlation between restrictive regulations and the
pre-crisis build-up of imbalances that was not fully captured
in forecasts.
Tighter regs might delay the ability of markets to sort
things out? That’s a meaningful concession to a basic point we’ve
been making at Reason.com for some time.
Of course, the OECD isn’t the only group making upbeat
assessments. Remember the claims made by the Obama administration
and its press cheerleaders regarding the stimulus? Here’s a
reminder from summer 2012:
Current unemployment in the good, old US of A? According to the
government’s latest number, it’s at 6.7
percent (and with a lower labor-force participation rate that
before the crisis started).
To add to a point made by the
OECD: If tight regulations make it difficult for markets to respond
to economic shocks and reallocate resources, there’s also a huge
role played by
regime uncertainty. To the extent that a government is seen as
constantly changing the rules of the game (sometimes in
contradictory ways, as when the Federal Reserve pours money into
banks but them pays them interest on reserves to keep that money
sitting in vaults), it freezes most hopes of recovery. Government
isn’t the sole cause for the business cycle and for economic booms
and busts (though its actions tend to make things more extreme, I’d
argue). But government attempts to forestall, cushion, or mitigate
upswings and downswings inject huge amounts of uncertainty that
almost certainly freezes businesses. How can you plan for the next
few years – or even the next few quarters – if you have no good
idea on how much you’ll be paying for employees’ health care? Or
what tax rates will be, or even what the federal budget will be?
Etc. The sort of manic interventions into all aspects of the
economy that started under Bush and keep on going under Obama
aren’t helping the recovery.
They are making it take a helluva lot longer to happen.
That’s one of the essential – and largely unlearned –
lessons of FDR’s New Deal. Constantly throwing up new
interventions into the economy, however well intentioned, freezes
things up instead of chilling folks out.
From 2008: “Obama’s New New Deal: As bad as the old New
Deal?”
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