Why Don’t the Economic Experts Tell Us the Truth?

by Joe Plemon on July 5, 2010

The book “Aftershock” by Weidemer, Weidemer and Spitzer documents economic predictions by people who should have known better but didn’t. Here is a sampling:

  • Prediction: “A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith!” Richard Band, editor Profitable Investing Newsletter, March 27, 2008.

What actually happened: At the time of Band’s comment, the Dow Jones industrial average was 12,300. By December, 2008 it was at 8,500.

  • Prediction: “AIG could have huge gains in the second quarter.” Bijan Moazami, distinguished analyst, Friedman, Billings, Ramsey, May 9,2008.

What actually happened: AIG lost $5 billion in the second quarter of 2008 and $25 billion in the third quarter. It was taken over in September by the U.S. Government.

  • Prediction: “I think this is a case where Freddie Mac and Fannie Mae are fundamentally sound. They’re not in danger of going under…I think they are in good shape going forward.” Barney Frank (D-Mass.), House Financial Services Committee Chairman, July 14, 2008.

What actually happened: Within two months of Rep. Frank’s comments, the government forced the mortgage giants into conservatorships and pledged to invest up to $100 billion to each.

  • Prediction: “I think Bob Steel’s the one guy I trust to turn this bank around, which is why I’ve told you on weakness to buy Wachovia.” Jim Cramer, CNBC commentator, March 11, 2008.

What actually happened: Within two weeks of Cramer’s comments, Wachovia came within hours of failure as depositors fled. Steel eventually agreed to a takeover by Wells Fargo. Wachovia lost half their value from September 15 to December 29.

  • Prediction: “I think you’ll see (oil prices) at $150 a barrel by the end of the year”. T. Boone Pickens, one of the wealthiest and most respected oilmen today, June 20, 2008.

What actually happened: Oil at the time of Pickens’ prediction was around $135 a barrel. By late December it was below $40.

  • Prediction: “I expect there will be some failures…I don’t anticipate any serious problems of that sort among the large international active banks that make up a very substantial part of our banking system.” Ben Bernanke, Federal Reserve chairman, February 28, 2008.

What actually happened: In September, 2008, Washington Mutual because the largest financial institution in U.S. history to fail. Citigroup needed an even bigger rescue in November.

Why don’t they tell us the truth?

How do you feel when your read these failed predictions? Angry? Confused? Miffed? Cynical? I probably feel some of all. And while I don’t claim to know another person’s motives for their actions, I have some theories about why these “experts” didn’t tell us the truth.

They do not know the truth.

They may be “experts”, but (being charitable) I concede that many really had no clue to the imminent housing, banking and stock market collapses. But then should they be called experts?

Finally: someone who tells the truth

They have agendas which are contrary to the truth.

Again, I don’t claim to know another person’s motives, but T. Boone Pickens, an oil man, is not likely to make negative predictions about oil. Richard Band, editor of Profitable Investing Newsletter, knows that dire market predictions will normally curtail investing.

Predicting failures could make a leader seem inept.

Barney Frank, as House Financial Services Committee Chairman, may have realized that failures of Fanny Mae and Freddy Mac could be reflections on his leadership ability. Same with Federal Reserve Chairman Ben Bernanke in regard to impending bank failures.

They honestly believe that knowing the truth is not a good thing.

Have you ever had someone hide the truth from you because they didn’t think you could “handle it”? Have you ever heard, “what you don’t know can’t hurt you?” If you are like me, once you learn that a friend or relative withheld the truth because it was “for my own good”, I feel patronized…and angry. It may be that certain experts simply don’t think that us normal down to earth citizens have the fortitude and integrity to deal with reality, so they keep it from us.  Is “arrogant” a fitting word here?

The doctor/disease analogy

If your doctor knew you had a life threatening disease, which of these would you prefer:

  • Not telling you because your disease would reflect poorly on his ability as a doctor?
  • Not telling you because he didn’t think you could deal with the truth?
  • Telling you the truth?

You want the truth of course. I realize that economic forecasting is not as an exacting science as practicing medicine, but, be it a doctor, a politician, or an economic pundit, I want to know the truth.

Whom do you trust?

I don’t want to become a cynic, but recent history has given me little reason to trust the so called economic experts. I have therefore vowed to do something far too few of us do: think for myself. I might not get it right either, but at least I know my own motives. And I am the expert in one financial arena: my own finances.

How about you? How do you filter economic predictions? Whom do you trust? Why?

Creative Commons License photo credit: LowImagination

Creative Commons License photo credit: Shot By Darko

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{ 8 comments… read them below or add one }

Financial bondage July 5, 2010 at 8:32 am

I hate to say it, but I don’t completely trust the banks, or wall street, and certainly not the politicians. We seem to live in a culture where no one speaks the truth anymore. Being honest means you may miss out on making some money, or risk your reputation or career.

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joeplemon July 5, 2010 at 11:05 am

Arthur,
I don’t think we should automatically trust anyone or any institution. This is not about being paranoid, but simply insisting that others earn our trust by proving themselves to be trustworthy. I don’t think anyone should trust me (or my blog) unless I can earn that trust.

This being said, I don’t blame you for not completely trusting banks or wall street or politicians. I agree with you. Make them earn it.

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Kevin@InvestItWisely July 5, 2010 at 11:07 am

Much of the failure of economists to see what is happening is due to their reducing of human behavior into economic models which even they don’t completely understand, and which fail to accurately reflect reality.

The Austrians take a different approach, and I believe they were much more successful in predicting the recent turn of events, the effects of credit stimulus, and the bust that follows. You might find it interesting to read the Mises economics blog, at http://blog.mises.org/, or Peter Schiff’s commentary at http://www.europac.net/. Ludwig Von Mises, for which the institution is named, was scorned throughout his life by the establishment and by academia for refusing to compromise in his quest for the truth or in his values.

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Steven and Debra July 5, 2010 at 2:20 pm

Great post Joe!

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Josh July 5, 2010 at 2:25 pm

good article!

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Darren July 5, 2010 at 2:44 pm

I’m not sure if the experts truly know where the economy is headed either. Everybody’s entitled to an opinion, even the “experts.” But nobody needs to listen to an opinion just because it’s out there in the media.

I say just make sure your financial condition is the best it could be, and tune out the extra noise. For finances, I trust timeless books by authors such as Benjamin Graham and John Bogle. No need to get hyped up with the latest schemes.

I heard a cool saying once that goes like this: It’s not as important what’s going on in the White House, as it is what’s going on in YOUR house.

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carol@inthetrenches July 5, 2010 at 3:31 pm

Money. The current ecomonic crisis was caused by a man-made transfer of wealth from the average citizen to the bankers and insurance companies. The best summary I have read on the subject was $700 Billion Bailout by Paul Muolo. If you have high blood pressure make sure you have taken your pills when you read it. “Experts” are paid professionals in their chosen fields. They are not required to be objective, they acheive their status from those who are willing to pay them.

A couple of months ago I did a post on the subject also. http://inthetrenches2009.blogspot.com/2010/04/why-i-dont-always-agree-with-experts.html

Thank God we have the real and undisputable EXPERT and his name is Jesus Christ. His book is the Bible. Thanks Joe for working to share these basic principles with your readers.

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joeplemon July 5, 2010 at 3:59 pm

@Steve and Debra – thanks!
@Josh – thanks!
@Darren,
I agree that what is going on in my own house is way more important for me personally than what is going on in the White House. But I don’t want to be naive about the national economy either. You said that everyone is entitled to their own opinion. Right. But writing this post has helped me realize that real experts need more than opinions: they need objective data. I am more interested in reading what an “expert” says if he gives some research and data to explain why he thinks what he thinks. I wonder if any of these experts ever use the scientific method : induction – deduction? Hmmm.

@Carol,
I just read the post you mentioned. Well done! I appreciate your definition of experts: paid professionals in their chosen fields. The implication is that objectivity is secondary to the interests of those who pay them. A bit cynical? Probably. Correct? Probably.

I, like you, am glad we have a totally objective expert in Jesus Christ. We always get the raw truth from Him!

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