Another RBC model failure

[There may be a technical outage later today as we transition to a new platform.]

Remember early in the year when all the “experts” told us that Russia was facing economic collapse because of the draconian sanctions being imposed? Never happened. Noah Smith points out that the doomsayers were also wrong about the impact of the energy crisis on the German economy:

Germany may experience a recession in 2023 (they are very hard to predict). But if it does, it will likely not be due to “real shocks”. Rather, the cause would be declining NGDP growth triggered by the ECB’s anti-inflation program.

PS. I love to keep track of Bloomberg’s views on the economy. This is from today’s paper:

The world economy is beginning the new year on a more optimistic note, though that’s no guarantee 2023 will end that way

A variety of factors – a sooner-than-expected reopening of China’s economy, a warmer-than-normal winter in energy-strapped Europe and a sustained fall in US inflation – are combining to dissipate some of the gloom that engulfed financial markets at the end of 2022 and fanning hopes the world can dodge a recession.

And here’s what they said back in October:

I guess “100%” isn’t quite the metaphysical certitude that it used to be. (In fairness, they said “near certainty”, so perhaps they were rounding up from 99.5%.)

Me? I have “Noahpinion”.



31 Responses to “Another RBC model failure”

  1. Gravatar of Solon of the East Solon of the East
    13. January 2023 at 17:12

    Remember! Economic sanctions are ineffective. Businesses and economies adapt.

    Also, modest tariffs on imports into the US will wreck the US economy.

  2. Gravatar of William Peden William Peden
    13. January 2023 at 23:24

    Nice example.

    The warm winter is also a sign that the god Boreas, at least, is pro-Ukraine.

  3. Gravatar of Ricardo Ricardo
    14. January 2023 at 00:59

    You say economic sanctions are ineffective, because “businesses and economies adapt.” Then you incoherently state: “modest tariffs on imports into the US will wreck the US economy.”

    What happened to businesses and economies adapting? You seem to have forgotten precept one, as you wrote a ridicilous conclusion.

    You do realize that we had tariffs throughout most of the 19th century, when the economy was booming? Tariffs will not “wreck” the economy.

    And what economy are you referring to? Are you referring to the zombie companies propped up by financial credit? You think Twitter losing 4M a day is sustainable? 70% of Americans have less than 1000 in their bank accounts, and you think that is successful? Really?

    Your dogmatic belief (handed down to you) that tariffs are always bad, and that the U.S. should never erect any tariff, has created an untenable situation where everything tangible gets made and produced abroad, without considering the effects this has on future domestic production and innovation. Not to mention, effects on real wages.

    Innovation is the result of a factory worker saying: “I think I can do this better”, which is absolutely vital to economic growth. Without knowledge; without understanding how something works, without a culture predicated upon business ownership and production, you are unable to improve, to create, and give lifeblood to the economy. You are moving that knowledge elsewhere and handicapping future generations in America while uplifting future generations in China.

    Outsourcing also contributes to the centralization of industry, because not everyone can do it. Free trade isn’t free. There are costs such as import licenses, permits to operate in special economic zones (limited in supply and generally given to a political friend), absurdly long patents that prohibit anyone from doing anything, like Malone, who couldn’t build upon mRNA because the thugs who bought his patents decided to sit on it for twenty years. There are trademark laws; there are domestic permits required such as regulations on the size of a warehouse, where one operates, and then of course you have to deal with corrupt shippers who often ask for bribes to expedite, creating tiered systems where only centralized actors can gain an advantage.

    There are also security issues. You are giving power to a place where they hunt Fulan Gong, throw them in jail, and use a desktop matchmaking application with hospitals to harvest their organs on demand. And you want to give these organ harvesting lunatics total control over production and subsistince?

    Not smart!

  4. Gravatar of Michael Rulle Michael Rulle
    14. January 2023 at 04:51

    I like to say I am confused about everything. I am being sarcastic of course. Not because I am not confused per se, but there is very little one can read that does not create confusion. Scott’s Bloomberg example is an excellent case.

    My belief ——as in opinion——is that it is our perception of things that have gone haywire—-not the reality of things. I cannot even believe my own biases. Is it possible that opinions about facts we read on digital devices are irrelevant?

    It is not merely possible but likely. So my default perception is intuition——which if one were to read “Everything is Obvious. Once you know the answer” is probably the last thing one should do. When I read that book, I perceive craziness.

    But I am not a nihilist. Our politics have become almost nihilistic if not completely nihilistic. My current intuition is Covid (the idea, not the disease) created the latest craziness, but it is starting to fade, but it is “still a dead man trying to get out” .

    I am sticking with my best guess. Our economy will continue to improve in a normal way, people will obsess with their biases, but craziness will gradually disappear.

  5. Gravatar of Spencer Spencer
    14. January 2023 at 07:13

    Propaganda / dis-information is all the rage (Biden is a good example). The “illusory Trust Effect” is “the tendency to believe false information to be correct after repeated exposure.”

    “The “Illusory trust effect” is akin to what is called a “big lie (German: große Lüge), being a gross distortion or misrepresentation of the truth, used especially as a propaganda technique.”

    That’s why the FED controls its economist’s communiqués since Bernanke’s era.

  6. Gravatar of Sara Sara
    15. January 2023 at 00:54

    There is one thing that will collapse the economy, the culture, and the constitution, and it’s illegal immigration.

    As Mayor Adams in NYC recently said: “the illegal immigrants in NYC are reaching a breaking point.”

    In other words, they can no longer afford to house them all in four star hotels, which is what the woke bordeless nabobs continue to call for.

    There is simply not enough jobs for them, and taxpayers are tired of footing the bill.

    And Adams leftist solution to this problem is suprise suprise: ask the state for more money. This means people in Ticonderoga, who are sensible, now have to pay for NYC’s radical woke policies. Remember that Sumner spoke highly of Adams before he was elected. He even went so far as to call Adams a “moderate.” If he means “moderate establishment thug” then he’s correct.

    Now you know what farmers in Texas have been telling you for the last 20 years, and which you convienantly dismissed until Abott began sending busloads of them to your cozy all-white northeastern communities. Suddenly, you see that the cultures are different. That it creates chaos, instability, homelessness, and reduces real incomes as the supply of labor unnecessarily increases.

    Is anyone surprised blacks in the ghetto don’t want them there. More labor supply and lower salary, thank you so much democrats. This isn’t the 1880’s folks. There is nowhere for the immigrants to go. There is no booming industry. There is no frontier, unless they want to live in the Canadian tundra.

    Is it any surprise that more and more are voting republican.

    They don’t want “millions of Chinese engineers”, as Sumner says, or Millions of hatians, cubans, and Ukranians.

    Or as the country of Ireland recently said: “we’re full.”

  7. Gravatar of Michael Rulle Michael Rulle
    15. January 2023 at 07:36

    I read an essay written 27 years ago—- “Why the News Is Not the Truth – Harvard Business Review”.

    It is fascinating. It could have been written last month. What I find most interesting about it is that I think most people believe this. But in 1995, HBR was writing what they believed was a new perception. I assume they did not believe people believed this then.

    Now virtually everyone assumes it is predominantly true—-even obvious.

  8. Gravatar of Tacticus Tacticus
    15. January 2023 at 14:24

    Going to go out on a limb and say that I don’t think there will be a recession in the US in 2023. I’m not expecting much (real) growth, though. Maybe 1% real growth and unemployment under 5%. Sue me in a year when I’m horribly wrong.

  9. Gravatar of Kangaroo Kangaroo
    15. January 2023 at 22:07

    As new information has come in, I have revised my forecast noiseward. My model is now signalling there may be as much as 100% probability of a recession in 2023. If headwinds emerge, they’re sure to influence the odds of a recession, but regardless the economic trend over time will likely continue to the right. Nonetheless, model constraints reveal that positive upside can’t be ruled out, as increasing sentiment could yield greater consumer confidence.

  10. Gravatar of Spencer Spencer
    16. January 2023 at 10:17

    Economics is a science of lies. The FED’s monetary transmission mechanism only became interest rate manipulation after legal reserves were discontinued. By tracking legal reserves, all recessions were both predictable and preventable.

    We knew this already:

    In 1931 a commission was established on Member Bank Reserve Requirements. The commission completed their recommendations after a 7 year inquiry on Feb. 5, 1938. The study was entitled “Member Bank Reserve Requirements — Analysis of Committee Proposal”

    its 2nd proposal: “Requirements against debits to deposits”

    After a 45 year hiatus, this research paper was “declassified” on March 23, 1983. By the time this paper was “declassified”, Nobel Laureate Dr. Milton Friedman had declared RRs to be a “tax” [sic].

    Now the FED is without a rudder or an anchor. Presumably, to get a recession, there would have to be a marked reduction (negative rate-of-change) in short-term money flows (“M” as defined by Shadow Stats).

  11. Gravatar of Spencer Spencer
    16. January 2023 at 10:47

    I used to post that I didn’t need a “disclaimer”.

  12. Gravatar of ssumner ssumner
    16. January 2023 at 12:39

    Kangaroo, You said:

    “My model is now signalling there may be as much as 100% probability of a recession in 2023. If headwinds emerge, they’re sure to influence the odds of a recession”

    So you’re saying there’s zero probability of headwinds? Because if headwinds might occur and influence the odds of recession, then logically there cannot be 100% chance of recession. Right?

  13. Gravatar of Edward Edward
    16. January 2023 at 22:14

    As a curious journalist, I called “Villa Velvet Escorts” (switzerland high end prostitutes) to inquire whether there is a pattern of bookings upon WEF arrivals, and sure enough they told me they’re “fully booked” and “we can always count on being fully booked during these annual events.”

    In other words, Sumner’s favorite Globalists descend on Switzerland once a year to plan their agenda for all of us plebes, which, apparently, includes banging a lot of prostitutes. (and probably crack)

    A major reckoning is coming soon for the neo-lib and neo-con establishment, and for Sumner and his love of the Romney/Bolton big gov, big biz, big military camp, it will be catastrophic; they’re entire world of swindling ponzi schemes will explode, and of course they’ll scream “terrorist” and complain about “disinformation” as every historical tyrant does. But in the end they will lose, because tyrants always lose. It’s only a matter of time.

  14. Gravatar of Kangaroo Kangaroo
    16. January 2023 at 22:17


    I apologize for the lack of clarity regarding headwinds.

    Headwind emergence – among other possibilities – is accounted for under the *may be* and *as much as* terms of the forecast. It is not *in addition* to these terms. If headwinds emerge, the probability of a recession *may* rise – possibly to *as much as* 100%.

    Elucidating that as one possibility was an effort to help readers understand the significant sources of variation in the model, as it’s well established that headwinds may impact economic outcomes but of course they are challenging to predict in terms of the future. However, I should have made it clear that the possibility of headwinds was not in addition to what had been previously described, but a description of the variation within the forecast.

  15. Gravatar of Justin in Texas Justin in Texas
    17. January 2023 at 08:32

    I admit I fell for the German deindustrialization meme. I suppose German goods demand is already highly price inelastic. I should have known better. I understand they’ve also been able to substitute coal for nat gas; not completely inflexible on their green program.

    Good lesson most of us should already know: it is very hard to move statistical aggregates in a big way in the medium term, through supply-side factors. More often it’s the monetary policy response to supply-side developments that moves things (Bernanke’s War on America following $110 oil in 2008 being my fav example).

  16. Gravatar of Justin in Texas Justin in Texas
    17. January 2023 at 08:40

    On the topic of a 2023 recession: people seem to want to talk about something dramatic. There’s zero market signal forecasting imminent recession.

    5-year TIPS are solid around 2.2%, oil’s at $80, copper at $4.15. All the real output statistical proxies are trending upward at sustainable rates. Inflation, and correlated series are showing slower growth, keeping the Fed happy. Unless someone knows what the major central banks have planned, I don’t see how he/she can forecast recession. Baseline is that 2023 is a solid year of low unemployment, normal job gains and normal RGDP growth. I hope the people forecasting recession have trades set up to get rich off it, because market’s are badly mispriced for one.

  17. Gravatar of Martin Mertens Martin Mertens
    17. January 2023 at 11:30

    Kangaroo: In what sense is the output of your model a “probability” considering it can be 100% for some future event but then if that event doesn’t happen you’re not particularly surprised?

  18. Gravatar of Scott H Scott H
    17. January 2023 at 21:20

    Maybe Bloomberg was looking to purchase some stock, and, obviously, needed to convince some people to sell…

    “At Global Century we like to be completely up front with our clients. That’s why we state, in our prospectus, that our investment advice is often self-interested or deceitful and may work to a client’s disadvantage. We think you deserve to know that.”

  19. Gravatar of Michael Rulle Michael Rulle
    19. January 2023 at 06:24

    Oh crap. The closest thing I have to a model is Goldman Sachs’s equity forecasts. They are a very good company (I dislike them) ——-one of the things they are very good at is their forecasts on equity prices——meaning they pick a time when prices seem somewhat extreme (high or low) and then forecast for the next year. They are wrong most of the time. The S&P dropped a couple of hundred points right after they came out with a bullish call for 2023.


  20. Gravatar of Henri Hein Henri Hein
    19. January 2023 at 11:02


    I’m pretty sure Kangaroo was spoofing. “revise the model noiseward” and “economic trends will continue to the right” are deliberate nonsense. I’m not sure if they were spoofing economic forecasting in general or Bloomberg in particular.

  21. Gravatar of TMC TMC
    19. January 2023 at 14:14

    The economy grew 1.9%, but that didn’t keep pace with inflation of 24.4%. There is a real loss here.

  22. Gravatar of ssumner ssumner
    20. January 2023 at 08:53

    TMC, Your comment has two big mistakes, which is a lot for such a short comment.

    1. The 1.9% figure is real growth
    2. Inflation wasn’t 24.4%

  23. Gravatar of TMC TMC
    20. January 2023 at 11:50

    I’ll be more specific. I think it’s fair to use the inflation including energy since it is a component of almost everything. The source is the same as you used for growth.

    So if the economy goes from 100 to 101.9, but energy use is 7.5 of the economy before inflation, and cost of energy rises 34% (2.5), then economy is net -.6.

    The economy grew 1.9%, but 2.5% of that was just higher energy prices.

  24. Gravatar of TMC TMC
    20. January 2023 at 12:12

    OK, I guess it depends what they used for a deflater for the 1.9%, though it looks like 9.6%. So GDP went from 100 to 109.6 to make it unadjusted for inflation. Plus the 1.9 gain – 2.5 energy loss =109.

    Deflate that again to get 99.45. A small, but real, loss.

  25. Gravatar of ssumner ssumner
    21. January 2023 at 10:13

    TMC, I have no idea what you are talking about.

  26. Gravatar of Henk Bruinsma Henk Bruinsma
    21. January 2023 at 14:23

    Hi Scott,

    In one of your lists of best films you mentioned “The Spirit of the Beehive.” Because of your recommendation, I watched the movie (on Youtube!) and was enthralled. That’s why I wrote a review. Maybe it would be of interest to you to read it. I would be interested to know what you think of it.

  27. Gravatar of ssumner ssumner
    22. January 2023 at 09:19

    Henk, I don’t think I’ve seen that film, but it’s on my list for next week. I’ll read your review after seeing it, in case there are spoilers.

  28. Gravatar of Henk Bruinsma Henk Bruinsma
    22. January 2023 at 13:57

    Hi Scott,

    I think you will love it.

  29. Gravatar of Sara Sara
    23. January 2023 at 07:11

    Remember when Sumner told us that anti vaxxers were all anti scientific, illiterate, morons? Okay, I admit, he didn’t use those exact words: but he did say something similar.

    The good news is that he and his wife’s biopharma connections won’t be able to deny it much longer. Not with the Wall Street Journal’s Allysia Finley destroying the booster logic this morning. Three years later, after finally looking at the data that the so-called “scientific illiterate” were looking at in 2020, the mainstream media is starting to come around.

    I suppose it’s better to be late than never. Although, quite a few lost their lives in the meantime as they drank from the chalice of propaganda. Perhaps they should have heeded to Emerson’s wise words of “self reliance.”

    But even better than the mainstream’s awakening, we can now take a victory lap around the vaccinated morons and their coagulated artieries.

    Remember the NBA video game called “Space Jam” in the early 90’s, and that beautiful and timeless slogan: BOOMSHAKALAKA!

    Well, that’s a slam dunk on the vaxx peddlers. Sumner must enjoy being wrong. Or he forgets a lot. Perhaps it’s age. Perhaps it’s all the movies and not enough reading. Who knows.

  30. Gravatar of Carl Carl
    23. January 2023 at 13:48

    What the heck are you rambling on about? The vaccines so clearly blunted the effects of this pandemic.
    One of the most bizarre phenomena of this pandemic has been the number of people who have turned against vaccines. It’s like turning against refrigeration or pasteurization.

  31. Gravatar of ssumner ssumner
    24. January 2023 at 09:07

    Henk, Thanks, I did. 🙂

Leave a Reply