This seems like good news to me. My favourite mainstream Keynesian bear, Nouriel Roubini, appears to have ‘capitulated’. Mr. Roubini, a popular and very well connected economist, has almost always been on the wrong side of the prediction fence, and this seems to be just another of chapter of his string of failed forecasts and eventual turnaround.
Mr. Roubini has turned bullish on the US markets, reports the Bloomberg,
Nouriel Roubini, the economist who predicted the financial crisis, said U.S. stocks may gain in the next few months as company earnings remain resilient.
Adds Thomas Brown of bankstocks.com
What the heck happened to the L-shaped recovery? Roubini’s view is now squarely within the mainstream expectation. Good for him. The facts changed, and so he changed his opinion. Keynes would be pleased.
For me, Mr Roubini exemplifies as one of the bizarre ironies of the marketplace where despite his persistent wrong predictions, Mr. Roubini has remained quite popular with media.
If his strategy has been patterned to a tournament bridge game called “playing for a swing” as Professor Arnold Kling suggests, where “It would appear that Roubini's strategy is to make forecasts that differentiate himself from the consensus forecast. This allows him to be spectacularly right sometimes and spectacularly wrong sometimes. As long as he succeeds in getting everyone to remember the right forecasts more clearly than the wrong ones, he becomes a prophet”, then his success reflects on the public’s poor memory (or survivorship bias).
Google search trends for Mr. Roubini vis-a-vis Dr. Marc Faber
While there may be some truth to this, I am not convinced.
The public seems jaded to the forecasting accuracy by experts.
In relative performance, another (less) popular grizzly bear (but Austrian school leaning bear), Dr Marc Faber, who appears to have consistently been accurate even in predicting short to medium term trends—even the latest divergence between EM and developed economies stocks—has almost trailed Dr. Roubini’s in terms of popularity. (note the difference in search volume index—X axis).
So the explanation of “spectacularly” right or wrong doesn’t seem to suffice.
Instead, I think, Mr. Roubini signifies what the public wants to hear more than the validity of his theories. He personifies the confirmation of many entrenched but flawed beliefs.
Search volume for Austrian versus Keynesian Economics
One would note of an almost similar performance between Dr. Faber and Dr. Roubini’s popularity variance levels—Austrian economics has largely been subordinate in popularity to Keynesian economics during the past years (although this could be changing).
Finally there could be another factor: pessimism bias sells.
In the question and answer portion of this splendid talk on innovation, economist Deirdre McCloskey points out that Paul Ralph Elrich remains quite popular in spite of his ‘spectacularly’ wrong prediction.
Mr. Elrich is known for having lost the famous Simon-Elrich wager- wager that based on the price of 5 metals anchored upon the overblown risks of overpopulation.
Perhaps many are simply more attracted to a pessimistic outlook, whether valid or not, out of the penchant to see or resist a change in the status quo, or based on social signalling (to conform with the consensus outlook or to show intellectual prowess or promote an ideology, e.g. using fear to expand government control)
As Professor Bryan Caplan writes,
David Hume—economist, philosopher, and Adam Smith’s best friend—blamed popular pessimism on our psychology. “The humour of blaming the present, and admiring the past, is strongly rooted in human nature,” he wrote, “and has an influence even on persons endued with the profoundest judgment and most extensive learning.”
Bottom line: The popularity of economic or market forecasters appear grounded mostly on the confirmation bias or giving the public what they want or desire to hear more than the validity of theories or the batting average or the accuracy of predictions.
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