Put forecasting to rest

One of the things I failed to learn after writing a book was the simple fact that methodically demonstrating a thing with data and evidence doesn’t resolve that issue. I shouldn’t have been so naive, given that some people still are flat-earthers, or anti-vaxxers, or Holocaust deniers, or claim that global warming is a Chinese hoax.

Which is why, despite earlier discussions about the folly of forecasts, I find myself once again compelled to bring up this subject. Blame it on the time of year, when all of the forecasts for 2017 are being rolled out, while the old ones that were so-often wrong are forgotten instead of being reviewed.

So please consider this column a public service. Here is a round-up of some of 2016’s forecasts, and a look at why they didn’t quite work out as expected:

▪ Get ready for $80 oil: “When oil drilling activity collapses, oil supply goes down, too.” That may or may not be true, but one thing we know is that oil never got anywhere near $80 this year, peaking at about $53 last week. The error here is assuming you can: accurately measure a drilling activity slowdown; figure out what that impact will be on supply; and determine how that will affect prices. This forecast, made by Raymond James, tried to thread that needle. It didn’t happen.

▪ The recession of 2016: “Central bank bungles, oil price fluctuations and overregulation indicate contraction.” This forecast, published in the reliably ideological Washington Times, commits the classic analytical error of infusing emotional politics into forecasts.

▪ Wall Street fears a Trump presidency: “Stocks may lose 10 to 12 percent of their value if he wins the November election, and there may be a broader economic downturn.” So wrote Justin Wolfers in the New York Times on Sept. 30, based on a “close analysis of financial markets during Monday’s presidential debate.” This prediction, for all we know, may yet prove true. But we have to note that since the election, the Standard & Poor’s 500 Index is up 6 percent.

Outrageous and wrong forecasts are typically forgotten, and when one randomly happens to come true, the guru is lauded as the next Nostradamus. It is an expensive and fatuous practice, and the finance industry should give it a permanent rest.

This story was originally published December 18, 2016 at 8:24 AM with the headline "Put forecasting to rest."