The Only Function of Economic Forecasting Is To Make Astrology Look Respectable

 Tim Harford in The FT 

Economist Ezra Solomon once quipped that “the only function of economic forecasting is to make astrology look respectable”. I’m not sure if the astrologer “Mystic Meg” was ever respectable, but she was certainly much loved. “Britain’s most famous astrologer by a million miles,” said her agent, after her recent death prompted an outpouring of affectionate recollections about her campy image and her arch forecasts about the National Lottery, praised both for their brilliant accuracy and sheer absurdity. 

It seems hard to imagine that an economic forecaster will ever earn such valedictions. But many economic pundits seem to have been taking lessons from astrologers. Consider this horoscope: “The balance of risks remains tilted to the downside, but adverse risks have moderated . . . On the upside, a stronger boost from pent-up demand in numerous economies or a faster fall in inflation are plausible. On the downside, severe health outcomes in China could hold back the recovery . . . ” 

That pretty much covers everything: good news, bad news, more inflation, disinflation. In case you’re wondering, it’s the latest World Economic Outlook from the IMF. But that sort of “rainbow forecast” is typical of the genre. 

Forecasting expert Philip E Tetlock, in his 2005 book Expert Political Judgement, noted that expert pundits had a tendency to make vague forecasts, and to excuse error as “erring on the side of caution” or being wrong only on timing. 

If so, those experts are treading a well-worn path. Consider the following statements: “You have a great need for other people to like and admire you.” “You have a tendency to be critical of yourself.” “While you have some personality weaknesses, you are generally able to compensate for them.” 

They sound like the kind of thing a clairvoyant might say after gazing into a crystal ball, but these statements are from an academic paper, “The Fallacy of Personal Validation”, published in 1949 by psychologist Bertram Forer. 

After getting his students to fill out a diagnostic questionnaire, Forer handed each of them a written assessment of their traits. The students believed the assessments were uniquely tailored on the basis of the questionnaire. But, in fact, each student got the same list of 13 statements, including the three above. The students felt the diagnostic had done an excellent job, and the vast majority agreed with at least 10 out of 13 statements. When the deception was revealed, wrote Forer, “they burst into laughter”. These “Forer statements” — also sometimes called “Barnum statements” after showman PT Barnum — can feel uncannily specific. Most people don’t realise that they are almost universal. 

In defence of economic forecasters, including the IMF, Barnumesque verbiage is traditionally accompanied by specific falsifiable numerical predictions. Surely, the real incorrigibles are the economics columnists. We’ll blithely hand-wave about risks and opportunities which may or may not manifest. And like Mystic Meg, we’re kept around only because people find our prognostications entertaining. 

The parallels should be no surprise. Walter Friedman’s history of economic forecasting, Fortune Tellers, explains that clairvoyants and economic forecasters started from a similar place. Evangeline Adams and Roger Babson were near contemporaries, born in the US in 1868 and 1875 respectively. Both offered investment advice in general and stock market forecasts in particular. Both were in high demand, and both died rich. The chief difference was that Adams was an astrologer, while Babson offered data-driven forecasts inspired by ideas from physics. 

Babson’s forecasting ideas look very strange today. He was a huge fan of Isaac Newton: he purchased and moved the parlour of Newton’s house from London to Massachusetts, funded research into antigravity, and his forecasting ideas are full of misappropriated Newtonian physics. His “Babsonchart” was built around the Newtonish idea that each boom above the trend was followed by an equal and opposite bust below. With hindsight, this was true by definition when Babson plotted the trend line in the right place. Alas, it offered little predictive power beyond generalities. 

Still, generalities will get you a long way. Babson’s reputation as a forecaster was secured when, on September 5 1929, a few weeks before the great crash, he opined, “sooner or later a crash is coming which will . . . cause a decline of from 60 to 80 points in the Dow-Jones Barometer”. Impressive. 

What is less impressive is that those gloomy forecasts began years earlier, in 1926, after which the Dow more than doubled. The crash was vastly bigger than Babson had predicted, and it continued long after Babson started predicting a recovery. 

No matter. Shortly after the crash began, Babson ran an advert in The New York Times announcing that “Babson clients were prepared” and he still gets credit for predicting the crash. Aficionados of clairvoyancy will recognise some similarities here. If you want to be admired for your forecasts, temper your bold claims with vagueness and be sure to trumpet the successes and downplay the failures. 

No sooner had Mystic Meg’s death been announced than The Sun, which published her column, was explaining that her final horoscope was a “sweet prediction” that she would be reunited in the afterlife with an old flame who died in a car crash in 1977. “Leo: It can be the most routine of routine journeys that takes you towards your soulmate.” 

For those readers willing to swallow the idea that death itself is “the most routine of routine journeys”, it’s a startling piece of prescience. For the rest of us, it’s audacious silliness. Mystic Meg would have been proud.

I was an astrologer – here's how it really works, and why I had to stop

Customers marvelled at my psychic abilities but was that really what was going on when I told their fortune? asks Felicity Carter in The Guardian 

 

‘It turned out what most people want is the chance to unload for an hour.’ Photograph: Fiorella Macor/Getty Images

The man was agitated, with red-rimmed eyes and clammy skin.

“Help me,” he said. “I’m under a curse.”

At first it was just flickering lights, he said. And then a figure, at the edge of his vision. Now something grabbed his fingers or stroked his arm. There was more – and it was happening more frequently.

“I saw a Catholic priest,” said the man. “But he couldn’t help. Can you?”

Yes, yes I could. I knew exactly what he needed to do.

I was a fortune teller. Every Sunday, I climbed the stairs of an old terrace house in Sydney’s historic Rocks district, to sit in the attic and divine the future. I would read Tarot cards or interpret horoscopes.

As a teenager, I’d devoured a book called Positive Magic. An instruction manual for witches, its central idea was that if you wanted something, and you had good intentions, you just told the universe and magic would happen. Although nothing I wanted (fame, money, hot boyfriend) actually arrived, one thing led to another and I taught myself to read Tarot cards. At the time I was a science student, and just considered it a fun game at parties.

That changed after I took my cards to my part-time job and read them for a colleague during the break. She picked the card for pregnancy, which we laughed about, because she wanted her tubes tied.

A week later she said, “Guess what the doctor told me this morning?”

She was pregnant, and I was officially psychic.

Deciding to develop my gift, I enrolled in a psychic class, where I learned to say the first thing that popped into my head. “Your first thoughts are the most psychic ones, before your rational mind interferes,” said the teacher.

I also learned that all things are connected, and everything is a symbol of something else. Suddenly, I saw signs and omens everywhere.

FacebookTwitterPinterest ‘The range of problems faced by people who can afford $50 for fortune telling turned out to be limited: troubles with romance, troubles at work, trouble mustering the courage for a much-needed change.’ Photograph: Busà Photography/Getty Images

To test my new skills, I volunteered to be a clairvoyant at the spiritualist church. Congregants would place a flower on the table, and the clairvoyants would choose one and “read” it at the microphone. Nervous, the first thing I grabbed was a packet of silver foil. The rose inside had been packed so tightly, its petals were crushed. I didn’t get a single vibe from it, so I just described the symbolism.

“You are feeling battered and bruised,” I said.

Afterwards, a woman approached and said she was a victim of domestic violence, and what should she do?

I was only 19 and had no idea, but my psychic reputation soared. The attention was intoxicating.

Then the universe told me I wasn’t cut out for science, by sending me my second-year results. I dropped out to pursue theatre and also signed up for a one-year course at the Sydney Astrology Centre, a cavernous commercial building in a seedy part of town.

The course began with the meanings of the zodiac, from Aries to Aquarius. Then the luminaries; the sun (what you will become), the moon (what you brought into this life) and planets. After that, how to calculate planetary positions and cast horoscopes.

Although astrologers use Nasa data for their calculations, horoscopes aren’t a true map of the heavens. The Babylonians who invented astrology believed the sun rotated round the Earth; modern astrologers still use Earth-centred charts, as if Copernicus had never existed. That’s only the start of the scientific problems.

The astrological meanings themselves derive from a principle called sympathetic magic, where things that look alike are linked together. Mars looks red, so it rules red things like blood. How do you get blood? You cut, so Mars rules surgery and war.

You forecast by combining meanings with planetary movements. Say Saturn, planet of restrictions, is about to transit the First House of self – your life will contract! You’re going to get more responsibilities than usual. Or maybe you’ll be denied the chance to take on more responsibilities. Or maybe a cold, critical person will come into your life. But anyway, it’s a good time to go on a diet.

Astrology is one big word association game.

I loved it, though I was losing interest in other mystical practices. Partly I didn’t have time, because I was now immersed in theatre while working as a temp typist at St Vincent’s, a Catholic hospital. But as I bounced from one department to another, my views changed. I’d understood organised religion to be something between an embarrassment and an evil. Yet as Aids did its dreadful work – this was the 1990s – I watched nuns offer compassionate care to the dying. Christian volunteers checked on derelict men with vomit down their clothes. I became uncomfortably aware that New Agers do not build hospitals or feed alcoholics – they buy self-actualisation at the cash register.

Finally, I was accepted into a music degree and my days filled with classes, my nights with rehearsals. This caused a cash crisis, because I could only do office work during academic holidays. When I saw the ad for a fortune teller, I pounced.

My credentials impressed the man on the counter (“My name is Ron,” he said. “My spirit guide is Blue Star. He’s on the intergalactic committee”) and I was hired.

We charged A$50 an hour, a significant sum at the time, and I wanted to offer value. No fishing for clues from me – I printed a horoscope or laid the cards and started interpreting immediately, intending to dazzle the customer with my insights.

Half the time, though, I couldn’t get a word in. It turned out what most people want is the chance to unload for an hour.

The range of problems faced by people who can afford $50 for fortune telling turned out to be limited: troubles with romance, troubles at work, trouble mustering the courage for a much-needed change. I heard these stories so often I could often guess what the problem was the moment someone walked in. Heartbroken young men, for example, talk about it to psychics, because it’s less risky than telling their friends. Sometimes I’d mischievously say, “Let her go. She’s not worth it,” as soon as one arrived. Once I heard, “Oh my God, oh my GOD!” as an amazed guy fell backwards down the stairs.

I also learned that intelligence and education do not protect against superstition. Many customers were stockbrokers, advertising executives or politicians, dealing with issues whose outcomes couldn’t be controlled. It’s uncertainty that drives people into woo, not stupidity, so I’m not surprised millennials are into astrology. They grew up with Harry Potter and graduated into a precarious economy, making them the ideal customers.

FacebookTwitterPinterest ‘Intelligence and education do not protect against superstition.’ Photograph: Alamy

What broke the spell for me was, oddly, people swearing by my gift. Some repeat customers claimed I’d made very specific predictions, of a kind I never made. It dawned on me that my readings were a co-creation – I would weave a story and, later, the customer’s memory would add new elements. I got to test this theory after a friend raved about a reading she’d had, full of astonishingly accurate predictions. She had a tape of the session, so I asked her to play it.

The clairvoyant had said none of the things my friend claimed. Not a single one. My friend’s imagination had done all the work.

Yet sometimes I could be uncannily accurate – wasn’t that proof I was psychic? One Sunday, I went straight from work to a party, before I’d had time to shuck off my psychic persona. A student there mentioned she wasn’t sure what to specialize in – photography, graphic design or maybe industrial design?

“Do photography,” I said.

She looked at me, wide-eyed. “How did you know?” she said, explaining photography was her real love, but her parents didn’t approve.

I couldn’t say, “because my third eye is open”, so I reflected for a moment. Then it hit me. “You sounded happier when you said ‘photography’,” I said. My psychic teacher was right – the signals we pick up before conscious awareness kicks in can be accurate and valuable.

Well, maybe I wasn’t psychic, but it didn’t matter. It was just entertainment, after all, until the cursed man came in. The one who’d seen the Catholic priest.

“Get to a doctor,” I told him. “Now.”

That very week, I’d typed letters for a neurologist who specialized in brain diseases. Some of those letters had documented strikingly similar symptoms to this man.

“Are you saying I’m crazy?” he said, his hands balled.

“No,” I reassured him. “But Catholic priests know what they’re doing. If he couldn’t help, this isn’t a curse.”

That made the man angrier.

“You’re a fraud!” he shouted, and stormed downstairs to demand his money back.

The encounter shook me, badly. Shortly afterwards, I packed my astrology books and Tarot cards away for good.

I can still make the odd forecast, though. Here’s one: the venture capital pouring into astrology apps will create a fortune telling system that works, because humans are predictable. As people follow the advice, the apps’ predictive powers will increase, creating an ever-tighter electronic leash. But they’ll be hugely popular – because if you sprinkle magic on top, you can sell people anything.

Imran Khan's Naya Pakistan and a soothsaying beau

Irfan Husain in The Dawn

WHATEVER people might think about Imran Khan’s words and antics, nobody can deny that he brings a lot of colour and macho swagger to politics.

By making bizarre accusations against rivals, he succeeds in putting them on the defensive while deflecting any criticism of his own course of action. And, like Trump, he shrugs off attacks from the tiny minority of liberal, secular critics who quaintly seek the truth in our political discourse.

And so the PTI circus rolls on from one triumph to the next, lights ablaze and trumpets blaring. In fact, it’s the only show in town, with other parties and politicians providing the chief showman with a series of easy targets. Nawaz Sharif is hit with the charge that he handed over state secrets to the Americans. Proof? That’s a 20th century concept with no relevance to contemporary Pakistani politics.

With just a few months to go until the general elections, you would think Imran Khan would be burnishing his party manifesto, and highlighting the achievements of his party in KP province. Far from it: judging from media coverage, the whole country is fixated on the Great Khan’s marriage proposal to his ‘spiritual guide’.

Frankly, I couldn’t care less about who Imran Khan marries: what happens between two consenting adults should be strictly their business. However, the fact that a national leader, and a serious contender for the country’s most powerful civilian job, should need the crutch of a resident soothsayer is disturbing.

According to breathless media coverage, it was the lady in question who advised Khan to go to the mountain resort of Nathiagali while the Panamagate trial was going on. But do we really want a prime minister who is so gullible? However, Khan is not alone in his superstitions: according to reports doing the rounds at the time, Nawaz Sharif sought guidance from a pir known as Dewana Baba in Mansehra.

We are informed through a report in Dawn from a couple of years ago that Asif Zardari probably managed to complete his term in office thanks to the powers of Pir Ejaz. Apart from this major triumph, he also claims that he was instrumental in enabling Zardari to access the $60 million sitting in Switzerland, and frozen by the authorities pending an investigation.

And let’s not forget the goats: apparently, one animal was slaughtered every day for the duration of the Zardari presidency. The same gent had advised the PPP head honcho to stay near the sea to ward off the evil eye, as well as other supernatural attacks launched by his enemies.

During her second stint as prime minister, Benazir Bhutto was reported to seek guidance from Dewana Baba, Nawaz Sharif’s seer. You’d think that after Sharif’s unceremonious departure, BB would have seen the light. No chance: once bitten by the oracle bug, the victim seeks to guard his spiritual flanks against attacks from the dark side.

It is often insecure leaders who seek the advice of oracles and seers. Lacking confidence in their own decision-making powers, they look to higher powers to guide them. And once you start believing in jinns, you need to counter hostile spirits with your own unseen troops.

But as we know all too well, soothsayers often get it terribly wrong. Just look at what happened to Rajapakse, the Sri Lankan ex-president: there he was, solidly entrenched with well over a year to go in his term of office, when he suddenly called for an early election. Overnight — and much to everyone’s surprise — a fractious opposition coalesced into an effective election machine, and defeated Rajapakse.

It later emerged that he had been advised by his resident oracle that the alignment of his stars predicted victory if he were to call the election a year earlier than they were due. Big mistake. When asked to explain what went wrong, the soothsayer replied that he had guided Rajapakse to victory twice before, and “two out of three” wasn’t a bad record.

In fact, while we pretend to be impervious to such superstitious rubbish, we surreptitiously glance at the horoscope columns in the newspapers to see what the stars say. Many supposedly rational leaders have sought spiritual help in gaining an edge over their rivals. Ronald Reagan’s wife regularly consulted a Californian syndicated horoscope columnist.

Mankind has always looked for help to ward off the terrors of the night when spirits stalk the land, and ghouls and zombies await the unwary. Most belief systems make mention of them in one form or another.

 

So in this wider context, does it matter that the man who would be prime minister believes in this mumbo-jumbo? Actually, yes. Many years ago, Imran Khan rubbished Darwin’s theory of evolution, overlooking the mass of accumulated evidence that supports it. Is this the man who will give us a ‘naya Pakistan’?

Fitch downgrades Argentina and predicts default

Credit rating agency Fitch has downgraded Argentina, which is locked in a court battle in New York over its debt, and said the country would probably default.

Also read Ratings Agencies - The Power of Modern Day Astrologers

Also read How could Greece and Argentina – the new 'debt colonies' – be set free?

Fitch also said that Argentina's economy has slowed sharply this year Photo: AFP

11:55PM GMT 27 Nov 2012

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Fitch cut its long-term rating for Argentina to "CC" from "B," a downgrade of five notches, and cut its short-term rating to "C" from "B". A rating of "C" is one step above default, AP reported.

US judge Thomas Griesa of Manhattan federal court last week ordered Argentina to set aside $1.3bn for certain investors in its bonds by December 15, even as Argentina pursues appeals.

Those investors don't want to go along with a debt restructuring that followed an Argentine default in 2002. If Argentina is forced to pay in full, other holders of debt totaling more than $11bn are expected to demand immediate payment as well.

Argentine politicians, even those opposed to President Cristina Fernandez, have nearly unanimously criticized the judge's ruling as threatening the success of the debt relief that enabled Argentina to grow again.

Ratings by agencies like Fitch are used by investors to evaluate the safety of a country's debt. Lower ratings can make it more expensive for countries to borrow money on the bond market, exacerbating their financial problems. 

Argentina is in a deepening recession and is grappling with social unrest. Besides the court case, Fitch cited a "tense and polarized political climate" and public dissatisfaction with high inflation, weak infrastructure and currency.

Fitch also said that Argentina's economy has slowed sharply this year.

Of the two other major rating agencies, Standard & Poor's has a rating of "B-" for Argentina, five steps above default, and Moody's rates it "B3 negative", also five steps above default.

Wave a banknote at a pundit and he'll predict anything

Of course it is outrageous to jail scientists for honest errors, but it is legitimate to hold them to some account

• 
• • Simon Jenkins
  • The Guardian, Thursday 25 October 2012 19.30 BST

Illustration by Satoshi Kambayashi

On the evening of 5 April 2009, Luigi Guigno of L'Aquila in Italy was phoned by a sister terrified by tremors under their village. He told her not to worry. Government experts in "the forecasting and prevention of major risks" had just been on the news declaring there to be "no danger" of an earthquake. They need not go out into the street. A few hours later an earthquake struck and Luigi, his pregnant wife, their son and 300 others were crushed to death.

This week a local judge jailed six of the scientists, not for failing to predict the quake but for giving what he regarded as reckless reassurances. He fined them £6m and disbarred them from public office. World scientists condemned the verdict as inquisitorial and medieval. Britain's Lord May said it ignored the basic nature of scientific inquiry. Luigi's relatives disagreed. A local official said simply: "Some scientists didn't do their job."

When a forester fails to predict that a tree might fall and it kills someone, he is arrested. The same goes for a train mechanic who fails to repair a carriage, a cook who poisons a customer and a builder whose house collapses. They didn't mean to kill, but they failed to forecast what might ensue from their defective expertise.

Why does the same not apply to the professional scientists, experts and pundits on whose predictive genius so much of our life depends? The answer is that they claim protection, either through (usually weak) self-regulation or by pleading Lord May's fifth amendment, that the nature of scientific inquiry exonerates them of harmless mistakes.

This week agriculture ministers were left floundering by conflicting scientific guidance on bovine TB and badgers. Transport ministers were humiliated by statisticians failing to predict revenue on the west coast railway. The Totnes MP, Sarah Wollaston, called attention to the hysterical 2009 swine flu "forecast", which panicked Whitehall into blowing £500m on dubious Tamiflu, whose test results it refused to disclose.

Yesterday we were told that the nation was recovering from a second "dip" in a recession, which its forecasters had failed to predict. This is despite government economists being served by ever more powerful computers and mathematical models. No one, to the best of my knowledge, has been called to account for this failure.

Science has rarely enjoyed greater status. Schools are in thrall to it. Broadcasters grovel at its feet, with hours of programmes devoted to children gazing adoringly at scientific researchers, depicted as funny, garrulous, lovable role models. Science has taken the place of religion in a cocoon of uncritical certainty. Those who claim the title "scientist", be it natural or social, expect to combine the immunity of diplomats and the infallibility of popes. Science is merging into scientology.

Of course, Lord May is right, that academic inquiry must proceed uninhibited by risk from error. That is what universities are for, and why they should stay independent of the state. But the Italian geologists were not doing research: they were paid to apply their expertise to keep the public safe. They were not researching, but advising. They failed catastrophically.

The truth is that there is one law for the officer class and another for the poor bloody infantry. When experts trained to detect seismic phenomena fail, their fraternity does not criticise or review their work, but treats them as innocent and relieves them of blame. If an ordinary worker miscalculates the risk, if trains crash, trees fall, rivers are polluted or foodstuffs rot, he goes to jail. The difference is not in class of error but in class of person.

Since the dawn of time, people have craved prediction against uncertainty. They have paid soothsayers, witchdoctors, stargazers and palmists. They ask journalists at parties: "Who is going to win the American election?" and seem cheated if the reply is "I just don't know."

Some people are paid to forecast. Their job is to make assertions about the future, assessing likelihood over a spectrum of certainty. When a scientist says this or that "will happen", we expect it to have greater credence than if he had merely gazed into the entrails of a sacred goose.

The worst offenders are meteorologists. A Devon entrepreneur, Rick Turner, declared last month that he would sue the Met Office for inaccurate and "persistently pessimistic" forecasts, which had cost his region millions of pounds in lost revenue. I hope he wins. The gloomy Met Office, seemingly in the pay of the outbound tourism trade, is reckless with other's people's livelihoods. The weather on the Welsh coast this summer was not ideal, but it bore not the slightest resemblance to the daily "forecast" of it on the radio. The sun shone for far more hours than it rained, yet the forecast kept people away in droves. And there was never any hint of correction or apology.

Prediction matters to people. If the variables are too great, science should shut up, rather than peddle spurious expertise. But you can wave a banknote in a pundit's face and he will predict anything you like. Of course, it is outrageous to jail scientists for honest errors, but it is not outrageous to hold them to some account. When did Lord May's Royal Society last inquire into a scientific scandal? Journalists, like bankers, are getting hell these days for their mistakes. Why let seismologists off the hook?