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The Next Recession - 10/28/16

As pointed in a recent Bloomberg article, economists say the darndest things.  For instance, in a recent Wall Street Journal survey, a group of economists indicated that the odds of the next recession beginning within the next four years is nearly sixty percent. 

That may sound like a bold prediction, but is actually quite silly.  Saying that a recession might occur within the next four years is a statement that supplies nearly no useful information.  During the twentieth century, there were twenty recessions, so one every five years on average. 

As pointed out by writer Barry Ritholtz, that means that if you had been predicting a recession within the next four years, you would have been accurate on average about eighty percent of the time.  The fact that economists have a tendency to supply these types of forecasts is perhaps evidence that they have little idea regarding when the next recession will occur. 

The Economic Cycle Research Institute describes the situation thusly.  Economists tend to use models that quote reduce a complex economy to a rigid set of largely backward looking relationships close quote.  Frequently, these models are not very good at looking ahead.    

Anirban Basu, Chariman Chief Executive Officer of Sage Policy Group (SPG), is one of the Mid-Atlantic region's leading economic consultants. Prior to founding SPG he was Chairman and CEO of Optimal Solutions Group, a company he co-founded and which continues to operate. Anirban has also served as Director of Applied Economics and Senior Economist for RESI, where he used his extensive knowledge of the Mid-Atlantic region to support numerous clients in their strategic decision-making processes. Clients have included the Maryland Department of Transportation, St. Paul Companies, Baltimore Symphony Orchestra Players Committee and the Martin O'Malley mayoral campaign.