Economists Won't Predict the Next Crash — Because They Can't

ou get a lot of attention if you shout out things like “The stock market is about to collapse”, or “The US dollar crash is just around the corner”, or “The housing market slump is about to unfold”. But from the viewpoint of sound economics, making these kinds of predictions is quite impossible. Putting probabilities to certain outcomes – such as "I assign a probability of 30 per cent that the stock market collapses in 2018" – might be fashionable among forecasters, but it certainly does not do the trick or make things any better.

 

Some Can
 

To be sure: One cannot, and should not, dismiss the idea that there might be people out there who have the ability to forecast events happening in the future correctly on a sustained basis. For instance, a successful entrepreneur belongs to this very group. He or she comes up with products people want to buy going forward, and they sell these products at prices which exceed production costs. They are also in a position to forecast changes in consumer demand and adjust their output accordingly.

 

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