– Predicting recessions ?

163 views

[ad_1]

Please delete if it breaches rules

Given that we have data from the past for a time period (Just before, during and after an economic recession). Shouldn’t alot of people who work/track this information would see one coming or know we are on the brink of one or due in general just by looking at the numbers. If we know, shouldn’t we have corrective measures put in place to not let it happen ?

Is it just the scale that we can’t predict

Tldr – Why can’t economic downturn predictions/estimates get better since we have data from the past which helps understand things better ?

In: Economics
[ad_2]

Short answer: chaos.

Some things are very predictable. Other things are very unpredictable. One great example of this is the pendulum. If you have a single pendulum, it’s really easy to predict exactly where it’s going to be for a long time. But if you have what’s called a double pendulum, where a second pendulum is hanging off the first one, tiny changes in the starting conditions can lead to huge changes further down the line. There’s a great gif of this somewhere. I’ll try and find it. Point is, economics it’s more like this. Even if you had almost perfect knowledge of the market, a tiny change could lead to a hugely different outcome.

There are a lot of known indicators for recessions and we do employ countermeasures, like low interest rates.

It does still happen because frankly, our economy is very fragile, and political change is very hard. Not only do we not have a clear consensus on what’s best for the economy, but we also have people act in bad faith, just to get rich.

Recessions may be necessary. Any system of investment- and every economy, capitalist or controlled, is going to have to allocate resources in the anticipation of future returns, so every economy invests- involves guessing about the future.

Sometimes these guesses are right, and you get economic growth (collectively) or a profitable payoff (individually). Sometimes these guesses are wrong- you’ve put resources into something that *wasn’t* the best place. So you’ve got to move it. Unfortunately, that means you’ve got to stop what you’re doing, pull the money out, and put it someplace else, which means things slow down for a while during the reallocation of resources- things are basically moving around to find a new place to grow, not growing, and a lot of what was booming has to stop.