The reason you shouldn’t rely on what economists say to make decisions (for example in financial decisions) is because nobody grades an economist. As Howard Marks puts it, “Economists are like portfolio manager who don’t mark to market.” In other words, a source of predictions is only useful if it is reliably correct, but there is no way to know that about an economist because they don’t keep score.
See also:
- Naval Ravikant often says you shouldn’t trust someone who doesn’t have “skin in the game”
Links to this note
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Economists and financial analysts often assume high interest rates are associated with tight monetary conditions and, conversely, low interest rates are associated with easy money. In reality they indicate the opposite because of the supply side of credit.
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Probability of a Recession (2023 Q1)
A Wall Street Journal poll of economists found that the probability of a recession in the next 12 months is 61%, down slightly from 63% from October 2022 and significantly higher than the 2022 Q3 roundup.
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One question I find myself coming back to is whether or not macroeconomics is a useful source of explanations.
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Biologists Don’t Make Good Medical Doctors
Deeply theoretical fields don’t necessarily translate to highly practical fields. Economists don’t typically do well as investors. Just because biologists know a lot about the inner workings of the human body, doesn’t mean they make great medical doctors.
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Consensus Macro Forecasts Provide No Value
Macro forecasting is an area where it is easy to be as right as the consensus, but very hard to be more right. This highlights that consensus macro forecasts provide no value—it doesn’t tell you anything everybody else doesn’t know so there is no information advantage.