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.
Of course.
The only question is: when?
Economists have predicted 14 of the last 6 recessions.
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!
The D’s had better hope it doesn’t wait until 2021.
Re: the OP: yes.
Ddamn! That’s a helluva record!
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.
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?
No, no, it goes, “Tip the veal, try your waitress!”
Class-y.
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.
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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?
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:
BTW, do you agree or disagree that
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
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.
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.
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.