Whenever there is a major economic event (a rapid decline of stock prices, a spike in the price of oil, high unemployment, etc.) the media can be counted on to feature a person who was predicting these events all along. This should not be surprising because there are so many professional economists and commentators who cannot restrain themselves from making economic predictions that a few of them will turn out to be correct. But what is surprising is that so few journalists seem to be able to distinguish between skill and luck. This is one of the major themes of Nassim Nicholas Taleb’s seminal Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life.
If you are an obscure, but aspiring, economist, what are your options? In the June 2009 issue of The Freeman, Anthony de Jasay writes (p.33-34):
What is left for the 250,000 other, less-distinguished economists to do to gain fame and fortune? They too can offer forecasts and might put them on some record. If they place them in the cluster and the actual outcome is in the cluster, they remain unremarked and neither gain nor lose anything. If they go way outside the cluster and the outcome is in the cluster, nobody will remember the wrong forecast made a year earlier. They will again gain nothing and lose nothing. If their forecast is in the cluster and the actual outcome is way outside it, they will be in the good company of their 500 more-distinguished fellows and will again remain unremarked.
The rational choice for such an undistinguished economist is to make extreme predictions, corroborated with pessimistic scenarios that make such forecasts plausible. If the economist is wrong, nothing (or little) is lost; if he is right, great publicity and riches can be expected. In technical terms, “he has access to a positive-sum game against nature.” On a more serious note, Jasay writes that “such forecasts are the best method of deepening the gloom, frightening the credulous, and making the worst more probable.”