Economists as a whole are notorious for their poor forecasting predictions, which is why the saying “economists predicted nine out of the last five recessions,” is so well known. Economic forecasting is no doubt a difficult task. There are those few economists who are known for ‘getting it right’ or perhaps are just plain lucky. Neither obtaining an economics degree nor working as a professional economist can guarantee success. Of course, no forecasts are 100% correct and we can expect small errors in the numbers. However at times these forecasts are the opposite of actual outcomes and we experience unexpected economic meltdowns like the Global Financial Crisis and the Euro Crisis, during times when economists had predicted strong robust growth. So it isn’t a surprise that the credibility of economists as a whole has come under fire these past few years, and that economic forecasts are taken less seriously than before.
I had the privileged opportunity to attend the David Finch lecture at the University of Melbourne two weeks ago. Amidst many academics and esteemed guests, Mr. Richard Koo from Nomura Research Institute presented his lecture about Japan’s burst asset bubble, and its lessons which are now applicable to many of today’s troubled economies. Koo asserted that the problem was unlike the textbook-typical case of recession. Instead, countries like the United States, the UK, Spain and Ireland were suffering from what he called a ‘balance sheet recession’, akin to what Japan suffered from the 1990s through to the mid-2000s.