Does Boskin really have a 100% consistent record in predictions?

This comment from Noah Smith caught my attention:

But even in the case of experts, I think you need to be very, very confident in the expert’s record before you give special weight to that expert’s opinion. For example, Michael Boskin is legendary forgetting every major macroeconomic prediction wrong since the beginning of time. Paul Krugman is somewhat ahead of the average of pundits, though it’s a small sample. Robert Shiller has an impeccable record of bubble prediction, but that sample is even smaller.

Of course it’s just as hard to be 100% wrong in (binary choice) predictions as 100% right. Indeed I’d pay a small fortune for the advice of someone who was 100% wrong in predicting the future. Unfortunately when I followed the chain of links back to the source, I found that Noah had exaggerated Michael Boskin’s skill at prediction; his record is nowhere near as impressive as it sounds. Barry Ritholtz linked to a Jonathan Chait post that made the following claim:

If you are an investor, Boskin’s doomsaying is a sure sign of a coming bull market. Four years ago, Boskin penned a Journal op-ed whose thesis was captured in the headline, “Obama’s Radicalism Is Killing The Dow.” That was the signal for the Dow to go on a tear, doubling over the next four years. As Kevin points out, the Dow’s current “high” is an overstated artifact of dumb, unweighted statistics, but the underlying reality remains that the stock market has enjoyed an incredibly good four years under Obama’s radicalism.

I hope I’d never be silly enough to claim that Obama’s “radicalism” was killing the Dow. But if I was, you can be 100% certain my statement would not be a prediction about future movements in the Dow. After all, I do believe in the EMH. Don’t know if Boskin does, but I’d think Chait would need to find out before making that claim.

The post also criticizes Boskin for predicting the Clinton tax increases would lead to less extra revenue than forecast (note Boskin did not predict less revenue).  And also that the Bush tax cuts would cost less revenue than forecast.  These are reasonable claims. Then Chait assures us that these predictions turned out wrong.  Maybe so, but has he corrected for business cycle effects?  I doubt it.

My first editorial was published back in 1993 in the Boston Herald.  I’m still quite proud of that essay, although I don’t doubt that if someone could find it they could make me look like a fool, as the general tone was very similar to the Boskin piece that Chait ridiculed.  I claimed that Clinton was not governing as the centrist he promised to be in the campaign, and that his policies would not be successful.  But the bottom line, and the part I’m most proud of, was my prediction that Clinton would tack to the center.  Of course the famous Clinton/Gingrich administration of 1994-98 brought us much lower taxes on capital gains, welfare reform, trade liberalization, serious spending restraint, abandonment of health care “reform,” an HMO boom, privatization, widespread deregulation, etc.  And whereas the sluggish recovery of 1993-1994 led to a massive GOP sweep in 1994, the years 1994-98 produced a major economic boom, with low inflation.  So I was right that Clinton would change course, and I was right that the new supply-side policies would produce much better results.

Even so, I’m sure Chait would regard my editorial as laughably wrong.

So the bottom line is that we should pay no attention to Boskin’s predictions.  I wish I could tell you that Smith was right, or that investors could make a fortune using Boskin as a reverse indicator.  But once again we learn that painful lesson, there’s no free lunch.

PS.  Shiller’s predictive ability is also wildly overrated.  Count yourself lucky if you haven’t followed his stock market advice since March 2009.  And don’t forget his “irrational exuberance” claim of 1996.

PPS.  For what it’s worth I share Tyler Cowen’s skepticism regarding betting on beliefs.  Asset prices are the only “betting data” that I care about.  I don’t doubt that anti-Keynesians would have lost a bet on high inflation resulting from stimulus in recent years, just as Keynesians who signed that letter in 1981 predicting Thatcherism would result in disaster looked like fools 10 years later. Those bets don’t really tell us much about the validity of various models, but rather that highly fallible individuals often misuse their models. I think market monetarism is the true heir to Milton Friedman’s monetarism, and thus am not surprised than many of my fellow conservatives/libertarians have looked like fools.

HT:  Tyler Cowen.



7 Responses to “Does Boskin really have a 100% consistent record in predictions?”

  1. Gravatar of Saturos Saturos
    4. July 2013 at 14:17

    But do you take the Hanson/Caplan/Tabarrok side on betting as a tax on hypocrisy, which is ipso facto good, especially for “cleaning up” discourse in the blogosphere? I wonder whether Hanson himself believes in such an optimistic outcome as all serious talk of the future being conducted via bet or prediction market, with any other blogging on verifiable claims dismissed as shouting in the wind.

    I’m surprised Noah put that thing about Boskin out there without even thinking about it; I had to click through too, I was just as sceptical.

  2. Gravatar of Don Geddis Don Geddis
    4. July 2013 at 14:19

    The actual betting (i.e. the stakes) isn’t so significant, but one thing it often does is force a certain clarity about claims. Otherwise pundits tend to just use rhetoric for persuasive purposes, to suggest and connote certain outcomes, but always maintaining a plausible deniability.

    Those who, instead, are willing to go public at a certain point in time, with a clear prediction, and a mutually agreement method of evaluating the outcome in the future … at least have the advantage of having clearly said something. Which is a help to those of us readers in the here and now.

    Just to take a specific example that you know well: Krugman is now infamous for technically agreeing that we “should” try monetary stimulus (because: why not? try everything!), and also that while “conventional” monetary policy might be out of ammo, “unconventional” (and/or changing future expectations) isn’t. Yet how many of his readers actually got that message from his blog posts, where 99% of the words (on stimulus) are advocating fiscal stimulus, and/or fighting austerity?

    That’s plausible deniability. He’s lying to his own readers (via omission), while at the same time leaving himself an “out” for the technically savvy readers who call him on it.

    Wouldn’t it have been helpful, to force him to make a clear statement of prediction, where he would need to explicitly list all his special-case assumptions? That’s the benefit of requiring betting. That it stops pundits from cheating with their rhetoric.

  3. Gravatar of Benjamin Cole Benjamin Cole
    4. July 2013 at 20:54

    Another fellow who is often wrong, and even admits it, is Grant of Grant’s Interest Rate Observer. According to many of Grant’s predictions, we are sure to be in hyperinflation and 132 percent interest rates by now. .

    In fairness, and as Sumner notes, something shifted in the last 25 years. Interest rates keep going down, just like Japan, all over the developed world. Economists just can’t believe this. And maybe interest rates all over the developed world will get stuck in ZLB-land, just like Japan too. This also is impossible or unlikely, say most economists. But look at the trends….

    If one incorrectly posits that interest rates will go up, then one will make bad predictions.

    BTW, horrible news today:

    Fed Ready for September Taper After Shocking Market, Meyer Says
    Bloomberg – “ŽJul 3, 2013″Ž

    Federal Reserve policy makers are ready to start tapering bond purchases in September after Chairman Ben S. Bernanke shocked markets by announcing a conditional timetable, said former Fed Governor Laurence Meyer.

    This is terrible, and confirms my fears that the Fed cannot move to even a neutral position regarding QE.

    I have a better idea: How about Bernanke says, “We may taper down, or taper up, depending on future conditions.”

    Instead he is ever talking about tapering down.

    Who says we will not see ZLB in the USA?

    Maybe, maybe not.

  4. Gravatar of Ashok Rao Ashok Rao
    4. July 2013 at 22:14

    One of my teachers a couple years ago – on final exams – offered students the option of answering every multiple choice question wrong to get a 100%. If they got one right, though, it would be counted as a normal test.

    Needless to say, absolutely false prediction is quite difficult, and many students ended up with 5% on an important final.

  5. Gravatar of J J
    5. July 2013 at 01:43

    Professor Sumner,

    You said: “I hope I’d never be silly enough to claim that Obama’s “radicalism” was killing the Dow. But if I was, you can be 100% certain my statement would not be a prediction about future movements in the Dow. After all, I do believe in the EMH. Don’t know if Boskin does, but I’d think Chait would need to find out before making that claim.”

    Even if Boskin does believe in the EMH, the evidence for his claim is scant. First, new information was revealed when Obama was elected, so prices would have to be lower than they were before that day. Second, in Boskin’s piece, he argues that markets are dropping (in March, 2009) because investors are becoming aware of Obama’s radicalism. If prices had recovered from extreme lows but were still not particularly high, then Boskin’s belief in the EMH would be relevant. But, stock prices hit all-time highs and are much higher than they were when Obama was elected.

    The burden is on Boskin to point out when Obama shifted to less radical policies and to show that the market picked up after that shift.

  6. Gravatar of Browsing Catharsis – 07.05.13 | Increasing Marginal Utility Browsing Catharsis – 07.05.13 | Increasing Marginal Utility
    5. July 2013 at 04:01

    […] -Scott Sumner, “Does Boskin really have a 100% consistent record in predictions?“ […]

  7. Gravatar of ssumner ssumner
    5. July 2013 at 05:30

    Saturos, Betting seems like a stunt to me. Everyone knows that Krugman and I claimed that high inflation would not occur. We are judged on our predictions. Betting doesn’t really add anything.

    Don, Good point, but there are easier ways to get clarity than betting. Just ask for clarity.

    Ben, Good point.

    Ashok, That’s pretty devious.

    J, I don’t disagree. But again, Boskin’s claim was not a prediction at all, so it’s absurd to talk about the prediction being wrong. I was bad analysis.

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