Trust Them Anyway: Elites On The Economy

So the Wall Street Journal has an article documenting the split betwixt economists:

Economists were evenly divided between those who fear inflation will accelerate over the next year and those who see a bigger risk that the inflation rate will slow from already low levels, according to the latest Wall Street Journal forecasting survey.

See forecasts for growth, unemployment, housing and more. Plus, views on the Fed’s rates, stimulus and more. Survey conducted April 9-13. (Or download all data as .xls)

Complete Coverage: Forecasting Survey
On average, the 56 surveyed economists, not all of whom answer every question, expect tame inflation, forecasting consumer prices in December will be just 1.8% above year-earlier levels.

But there was a wide variance in the estimates which ranged from predictions of no increase in prices at all to a 4.4% increase. Consumer prices barely rose in March from February, and increased 2.3% over the previous year.

When asked what presents a bigger risk over the next year, 23 economists said accelerating inflation and 23 said slowing inflation. That mirrors a divide inside the Federal Reserve. At their March policy meeting, some officials argued the downturn in house prices is causing key measures to understate prices increases; others focused on the decline in inflation measures that exclude food and energy. Chairman Ben Bernanke appears to be in the latter camp.

“The moderation in inflation has been broadly based, affecting most categories of goods and services with the principal exception of some globally traded commodities and materials, including crude oil,” he said Wednesday.

The inflation issue is a key consideration for Fed officials debating when to signal markets that they are preparing to raise their target for short-term interest rates, now being held near zero.

“The Fed doesn’t want to start raising rates when you haven’t got really solid employment momentum,” said economist Kurt Karl of Swiss Re, who doesn’t see much risk of inflation amid widespread unemployment.

About the Survey

The Wall Street Journal surveys a group of 56 economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted every month. Once a year, economists are ranked on how well their forecasts have fared. For prior installments of the surveys, see: WSJ.com/Economist.

On average, the economists expect the unemployment rate, currently at 9.7%, to fall to just 9.3% by December while the economy adds around 1.9 million jobs over the next 12 months. The survey found that, on average, the economists expect the U.S. economy to expand at about a 3% annual rate in each of the four quarters of this year, although three-quarters said growth is more likely to be stronger than weaker than their forecast.

Economists continued to push back their expectations for when the Fed will begin raising rates. On average, the economists don’t expect the central bank to move until November; two months earlier they were predicting September. But predictions ranged widely from June 2010 to January 2012.

Some respondents worry that Fed officials are too focused on today’s measures of consumer inflation. “Pipeline price pressures are there,” said Conrad DeQuadros of RDQ Economics. He noted signs of increased prices of imports, commodities and at the wholesale level. “Commodity prices are increasing very rapidly, which suggests markets are sniffing out an inflation problem down the road.”

Most of the respondents—45 of 52 who answered the question—think that over the next five years, the risks of accelerating inflation are bigger than the risks of slowing inflation. Some say near-term inflation debate shouldn’t be the key to Fed policy.

These are the same people who would like to dictate policy. Every. Single. One. Of. Them.

The only thing worse than divided economists? Economists who agree. They are “certain” that this or that will or won’t happen.

Do you want these people telling you how to live your life?

The reason I bring this all up is this: We are constantly told that the smart people know what is best for us if we’d just listen. But they don’t know.

How about this simple economic advice? Get out of debt. Stop spending so much. Yeah, I’m talking to the folks who run the government and can’t manage their own house and want to manage yours.

Posted in Economy • Show Me The Money