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-   -   Is a recession coming? (https://boards.straightdope.com/sdmb/showthread.php?t=881809)

kirkrapine 09-10-2019 03:11 PM

Is a recession coming?
 
I recently heard an economist on NPR say the yield curve has been "inverted" for the past three quarters in a row -- a circumstance that preceded each of the last seven recessions.

beowulff 09-10-2019 03:21 PM

Of course.
The only question is: when?

Telemark 09-10-2019 03:23 PM

Quote:

Originally Posted by kirkrapine (Post 21852209)
I recently heard an economist on NPR say the yield curve has been "inverted" for the past three quarters in a row -- a circumstance that preceded each of the last seven recessions.

Economists have predicted 14 of the last 6 recessions.

Icarus 09-10-2019 04:01 PM

Quote:

Originally Posted by beowulff (Post 21852229)
Of course.
The only question is: when?

And how long, and how deep?

If there were ever a time for a "That's what she said!"

Bosda Di'Chi of Tricor 09-10-2019 04:06 PM

Quote:

Originally Posted by Icarus (Post 21852321)
And how long, and how deep?

If there were ever a time for a "That's what she said!"


That what she said!

BA-DUM-DA!
\
That you folks, I'll be here all week, try the veal!

Velocity 09-10-2019 04:11 PM

Quote:

Originally Posted by beowulff (Post 21852229)
Of course.
The only question is: when?

The D's had better hope it doesn't wait until 2021.

Snowboarder Bo 09-10-2019 04:18 PM

Re: the OP: yes.
Quote:

Originally Posted by Telemark (Post 21852233)
Economists have predicted 14 of the last 6 recessions.

Ddamn! That's a helluva record!

begbert2 09-10-2019 06:40 PM

Quote:

Originally Posted by Telemark (Post 21852233)
Economists have predicted 14 of the last 6 recessions.

According to the cite, the yield curve has actually predicted 7 of 7 recessions, with 100% accuracy, over the past 50 years.

It appears that the delay from inversion to recession ranges from half a year to a year and a half, based on the admittedly small data set presented.

KarlGauss 09-10-2019 07:03 PM

The information needed to 'predict' a recession can't possibly exist, can it? Given the huge number of interacting (and I would say unknowable) systems that such predictions are based on, the best they can do is give likelihoods and their confidence intervals must be considerable (if they are even knowable).

Moreover, once a prediction was publicized, wouldn't the model necessarily have to be changed or at least be reiterated since the prediction itself would influence the economy (Hawthorne Effect, Psychohistory, . . . ) thereby rendering the earlier prediction obsolete?

kirkrapine 09-10-2019 07:23 PM

Quote:

Originally Posted by Bosda Di'Chi of Tricor (Post 21852333)
That what she said!

BA-DUM-DA!
\
That you folks, I'll be here all week, try the veal!

No, no, it goes, "Tip the veal, try your waitress!"

Sunny Daze 09-10-2019 09:41 PM

Class-y.

Bone 09-10-2019 10:07 PM

Moderating
 
Quote:

Originally Posted by kirkrapine (Post 21852740)
No, no, it goes, "Tip the veal, try your waitress!"

You're relatively new, so I'm quoting you, but there were a few other comments in this thread as well. Knock off the juvenile locker room innuendo.

[/moderating]

Flyer 09-11-2019 12:24 AM

Quote:

Originally Posted by KarlGauss (Post 21852702)
The information needed to 'predict' a recession can't possibly exist, can it? Given the huge number of interacting (and I would say unknowable) systems that such predictions are based on, the best they can do is give likelihoods and their confidence intervals must be considerable (if they are even knowable).

Of course the information exists. It's existed for well over 100 years. It's called "the business cycle."

Haven't you ever read an Econ101 textbook?

KarlGauss 09-11-2019 05:49 AM

Quote:

Originally Posted by Flyer (Post 21853186)
Of course the information exists. It's existed for well over 100 years. It's called "the business cycle."

Haven't you ever read an Econ101 textbook?

Thank you for your reply.

Let me follow-up by asking a couple of questions: Was the "business cycle" extent in 2007? Do you believe that global/national economies are stochastic systems? Might the economy be affected by the weather? A terrorist attack?

KarlGauss 09-15-2019 11:26 AM

Quote:

Originally Posted by Flyer (Post 21853186)
Haven't you ever read an Econ101 textbook?

Well, Robert Shiller, Sterling Professor of Economics at Yale surely did (presumably before he won the Nobel Prize).

Have you read what he wrote? It was published just today in the NYT so I'm gonna go out on a limb and bet the answer is no. It's probably behind a paywall anyway. So, I'll excerpt a bit for you:

Quote:

When will the next recession arrive?

Economists are evaluating such factors as . . . shifting tariff policy, the monetary policy of the Federal Reserve and other central banks, and such “leading indicators” as the yields in the bond market.

. . . They provide insights about the state of the markets and the economy, but they have severe limitations as forecasting tools. This approach will not produce a definitive advance reading of a major shift from growth to contraction: a recession.

Forecasting such a shift is extremely difficult . . .

The probability that a recession will come soon — or be severe when it does — depends in part on the state of ever-changing popular narratives about the economy. These are stories that provide a framework for piecing together the seemingly random bits of information that one picks up from friends, the news or social media.

For consumers these narratives affect decisions on whether to spend or save, whether to take a demanding or an easy job, whether to take a risk or stick with something safer. For businesspeople the prevailing narratives affect deliberations on whether to hire more help or lay off employees, whether to expand or retrench or even start a new enterprise.

. . . Hardly any of us have precise formulas to decide our plans. So we allow ourselves to be influenced by the emotions, theories and scripts suggested in the stories we hear from others.
BTW, do you agree or disagree that
Quote:

Originally Posted by KarlGauss
the prediction itself would influence the economy


Buck Godot 09-15-2019 12:33 PM

Quote:

Originally Posted by begbert2 (Post 21852666)
According to the cite, the yield curve has actually predicted 7 of 7 recessions, with 100% accuracy, over the past 50 years.

It appears that the delay from inversion to recession ranges from half a year to a year and a half, based on the admittedly small data set presented.

I wouldn't put much faith in a study set that small. p. The actual accuracy could be 75% and would still have 13% likelihood of appearing 100% accurate over 7 trials. even more so if you account for cherry picking of economic indeators and the inclusion of a delay that gives them a large amount of wiggle room. Recall the obviously coincidental Redskin Rule which had 100% accuracy until it didn't

Sam Stone 09-15-2019 02:46 PM

Predicting a recession is a lot like trying to predict whether the next grain of sand dropped on a pile will cause it to collapse. It's impossible, because of complexity. But even if it's impossible to literally predict, you can certainly see conditions that suggest that things are starting to get unstable.

Start with a bare table. Start piling up sand. At first, you can easily predict that with each new sand grain, the pile will get a little higher. But as the pile grows, stresses inside it get bigger and bigger. At some point, you think, "Okay, this thing will collapse any time now". But you can't predict the grain of sand that will do it, or even maybe whether the next 100 or 1000 grains of sand will do it. Just that the pile is getting to the point where in the past it showed a tendency to collapse.

That's what predicting a recession is like. Towards the end of a business cycle you can certainly see the strains in the system. The Yield curve being one of them. But you simply can't predict whether a recession or financial crash or some other collapse of meta-stability will hit today, or next week, or next month, or next year. You just know that the pile is starting to look mighty shaky.

That's where we are at now. Record debt, trade tariffs, a slowdown of the economy in Europe and Asia, interest rates near the zero bound, moribund long-term investment. We can see that the pile is getting pretty big, and pebbles are starting to roll down the sides, but we have no idea when the collapse will come, other than it sure looks like we're creeping up on it.

Sam Stone 09-15-2019 02:51 PM

Quote:

Originally Posted by Buck Godot (Post 21861885)
I wouldn't put much faith in a study set that small. p. The actual accuracy could be 75% and would still have 13% likelihood of appearing 100% accurate over 7 trials. even more so if you account for cherry picking of economic indeators and the inclusion of a delay that gives them a large amount of wiggle room. Recall the obviously coincidental Redskin Rule which had 100% accuracy until it didn't

Totally agree. Fudging the time window is a big giveaway. Historically, the average business cycle has lasted five and a half years. If you consider a recession unlikely in the first half of the cycle, you can simply 'predict' that a recession will hit sometime in the last two years of the business cycle and be correct most of the time. And of course, with only seven samples it's easy enough to be correct through sheer luck so long as you are even remotely in the ballpark.

The same is true for almost all political data. In this election year, you'll hear a lot of crap like, 'If he wins, this will only be the first time in 50 years that a person with X has won an election in that state while not carrying the capital' or some such rot. Then you look at the stats and discover that in the time mentioned there were only three or four elections where that could possibly have mattered, so it's essentially just random.

Flyer 09-15-2019 02:57 PM

Quote:

Originally Posted by KarlGauss (Post 21861758)
Well, Robert Shiller, Sterling Professor of Economics at Yale surely did (presumably before he won the Nobel Prize).

Have you read what he wrote? It was published just today in the NYT so I'm gonna go out on a limb and bet the answer is no. It's probably behind a paywall anyway. So, I'll excerpt a bit for you:

He's not talking about predicting a recession. There is only one way to predict a recession, namely: "Yep, the next one is coming."

He's talking about predicting the TIMING of a recession, which is a different thing altogether.

KarlGauss 09-15-2019 05:46 PM

Quote:

Originally Posted by Flyer (Post 21862123)
He's not talking about predicting a recession. There is only one way to predict a recession, namely: "Yep, the next one is coming."

He's talking about predicting the TIMING of a recession, which is a different thing altogether.

Indeed, predicting that something will occur at some unspecified moment, within some limitless time interval, is hardly predicting at all, business cycles, textbook ideals, and pundits notwithstanding.

Bone 09-15-2019 11:55 PM

Moderating
 
On re-read, this is more IMHO so I'm moving there from GD.

[/moderating]

Corry El 09-16-2019 08:58 AM

Quote:

Originally Posted by Sam Stone (Post 21862102)
Predicting a recession is a lot like trying to predict whether the next grain of sand dropped on a pile will cause it to collapse. It's impossible, because of complexity. But even if it's impossible to literally predict, you can certainly see conditions that suggest that things are starting to get unstable.
...
That's where we are at now. Record debt, trade tariffs, a slowdown of the economy in Europe and Asia, interest rates near the zero bound, moribund long-term investment. We can see that the pile is getting pretty big, and pebbles are starting to roll down the sides, but we have no idea when the collapse will come, other than it sure looks like we're creeping up on it.

You can't predict timing I agree. And it's not entirely clear we're that near the actual casual factors of previous recessions. Which have been first and foremost Fed tightening cycles* and increase private sector (not govt or total) debt loads. The Fed *was* tightening, though now loosening again, so if there is a recession in the next year or two it might be argued it follows past cases. But not very aggressive tightening and now going the other way. On debt, the relative cost of servicing debt for households and corps in the US is still significantly lower than 2007. Debt in general in the world is higher, but the kind of increase in debt servicing cost relative to income in the US that's preceded most US recessions, not so much right now.

OTOH the gradually greater internationalization of the economy, or even the recent backsliding of that (trade tensions) makes past correlations of US-centric measures to US recessions less reliable. Which could cut either way now. On the pro-recession side there's definitely slower growth in a lot of the world, apparently much higher chance for example Eurozone goes back into recession soon, and China not recession as in negative growth but negative compared to recent growth. On anti-recessions side the world financial system has become more USD-centric even in recent years, even since the 2008-9 crisis, even as US GDP as % of world GDP goes down, and even as import/export is a relatively low % of the US *real economy*. Meaning on one hand the shape of the US treasury yield curve is more influenced by overall global financial conditions than it used to be, but the US real economy while certainly affected by world economic conditions, isn't affected to the same degree. This is a notable caveat IMO for the 'yield curve shape predicts recession' argument which also as others have pointed out is based on actually pretty few examples statistically speaking.

And that's even assuming the statistical process is stationary, which it's not. Derivations of the supposed underlying statistical process in finance and economics often assume it's like inferring the odds of a dice or roulette table by sampling outcomes. But in case of finance/economics the 'dice' or 'table' is probably also changing shape between trials. This tends to defeat prediction by means of 'what's always happened' to a degree people tend to underestimate IMO, even people who should know better or are even those paid to make such predictions.

*inverted yield curve being in part a symptom of relatively tight Fed monetary policy, they directly control short term not long term rates.

TheKingOfBread 09-16-2019 09:33 AM

It's so hard to determine when the next recession is coming. One eventually always comes because malinvestment is occuring all the time. When too much malinvestment gets built up in a certain sector and fuels massive speculation then one's likely to happen again. Many people cite student loans as the next one, but as many posters are saying its almost impossible to know.


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