forecasting
Forecasting is astrology
The rule
The only function of economic forecasting is to make astrology look respectable.
Where it flips
Rejecting forecasts does not mean ignoring the future. What-if scenarios and sensitivity checks are fair. The line is between tracing 'if this, then that' chains, and stating one confident prediction.
Galbraith mocked the confident exact prediction, because the economy is too tangled and shock-prone to forecast to a number. Your job is not to call where rates or growth will land. It is to draw a chain showing how a change would flow through to companies. You trace how things connect. You do not name the outcome.
A worked example
Instead of predicting the RBI's next rate move, a reader maps how a possible rate rise would lift an Indian housing-finance lender's funding cost, squeeze its margins, and slow its lending. The chain is the work. The number is not. [illustrative]
How to spot it
- ·an exact number given with false confidence
- ·no chain of cause and effect behind the call
- ·a prediction replacing the mechanism
- ·past forecasts quietly forgotten
John Kenneth Galbraith · A Short History of Financial Euphoria