This Friday is Yom Kippur, the day when Jews around the world ask forgiveness for their transgressions from the year past. Rabbis remind the penitent to dwell on their sins of omission, in which they did nothing when a more thoughtful and proactive action was needed, and sins of commission, in which they actively participated in an unjust action. And while not all economists are Jewish, Gene Epstein the economics editor at Barron’s, offered his thoughts on how this applies to the group.Â
While Gene is certainly on to something, I think he could have gone much further in his finger pointing. Increasingly, economists are calling the tune to which businesses and consumers dance. Since their words and opinions matter, they may consider seeking forgiveness for what they have said, and what they have not.
Sins of Omission
Despite clear evidence that elevated prices in stocks, bonds and real estate remain a direct consequence of zero percent interest rates and quantitative easing, the crowd has asserted again and again that the prices are justified by the surging U.S. economy. There is very scant evidence upon which to base such an opinion.
Most economists have held very tightly to the view that was widely shared at the end of 2013; that 2014 will be the year that the U.S. economy finally shakes off the malaise of the Great Recession. And even though the script has failed to live up to these expectations, the economists haven’t seemed to notice.
During the First Quarter of this year, the economy contracted at an astounding annual pace of 2.1%. But economists and politicians were very insistent that the severe miss was solely a result of the difficult winter. Although severe winters can be a drag on an economy (my research shows that the 10 roughest winters over the last 50 years knocked about two points off the normal first quarter GDP), the snow could not fully explain a five point miss from what had been forecast by the consensus at the end of 2013. But that’s exactly what they did.
