Column: While often wrong, economic prediction valuable information




This is the season of economic forecasts, for which there are many uses beyond their pure entertainment value.

Forecasts are most often used to assemble budget estimates and to aid in developing changes to public policy. They are used by businesses, social service providers, educators and the like to plan infrastructure, personnel investments and other important things.

While economic forecasts are almost always wrong in the strictest sense, they can be useful, if only to give everyone a point at which to begin their arguments. I also think forecasts provide some interesting insights into the way economic research is conducted and how it is used to formulate policy.

Almost all forecasts are constructed using long historical data from a variety of sources, such as the Bureau of Labor Statistics or the Institute for Supply Management. These historical data are then tortured to reveal relationships that can be used to make predictions about future levels of economic activity.

 

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