How to Live With Economic Doomsaying | Philipp Carlsson-Szlezak | TED

Summary

The speaker critiques the persistent pessimism in economic forecasting, highlighting historical instances where predicted crises, such as the 2020 pandemic's impact, did not materialize as feared. They argue that the reliance on flawed macroeconomic models and the media's penchant for sensationalism contribute to this culture of 'doomsaying.' Instead, the speaker advocates for rational optimism, urging individuals to embrace uncertainty and assess risks more broadly, rather than relying on deterministic models or sensationalist headlines.

Takeaways

• 🌐 Economic discourse often focuses on doom and gloom, creating a narrative of impending disaster.
• 🔮 Forecasting models used by economists have limitations and are not always accurate in predicting economic outcomes.
• 📰 The media tends to sensationalize economic risks, contributing to a culture of pessimism and fear.
• 💡 Despite predictions of economic downturns, many times the economy has shown resilience and recovered swiftly.
• 🤔 There is a need for self-reflection among economists, the media, and the public to understand the reasons behind the prevalence of doomsaying.
• 🔄 Economists should avoid relying on a single model and instead embrace the complexity and uncertainty of economic systems.
• 🌟 Rational optimism involves acknowledging potential crises while also recognizing the capacity for recovery and growth.
• 🔍 A broader analytical perspective allows for a more balanced view of risks and the potential for both positive and negative outcomes.
• 📈 Economic models should account for a wide range of variables and historical data to improve their predictive capabilities.
• 🚫 The costs of acting on false economic alarms can be significant, impacting businesses, society, and individuals.
• 💭 Consumers of economic news should be critical and discerning, not blindly following predictions without questioning their validity.

Q & A

What is the common theme in public discourse about the global economy?

The common theme in public discourse is the portrayal of the global economy as constantly on the brink of disaster, with frequent predictions of economic collapse or severe downturns.

How did the global economy actually perform after the 2020 pandemic hit?

Contrary to predictions of a deep depression, the global economy experienced a swift and strong recovery after the 2020 pandemic hit.

What was the initial prediction about inflation in 2021?

In 2021, doomsayers predicted perpetual inflation and a return to the high-inflation era similar to the 1970s, but this did not materialize as inflation fell after an initial spike.

What misconceptions about the economy were prevalent in 2022?

In 2022, there was a widespread belief in the inevitability of a recession, but this turned out to be unfounded as unemployment rates remained low on both sides of the Atlantic.

Why does the speaker suggest that doomsaying is prevalent in economics?

The speaker suggests that doomsaying is prevalent due to a combination of factors, including the inability of economists to accurately forecast using flawed models, the media's inclination towards sensationalism, and a natural human tendency to worry and focus on potential negative outcomes.

What are the real costs associated with false economic alarms?

The real costs of false economic alarms include leadership costs from incorrect decision-making and hard-dollar costs for firms and society, such as lost production, sales, revenue, and profits, as well as increased prices and inflation.

How does the speaker propose we should approach macroeconomic risks?

The speaker proposes embracing uncertainty and letting go of the master-model mentality. Instead of chasing elusive certainty in forecasts, we should accept the diverse drivers and messy reality of economics, and focus on understanding the distribution of risks and signposts along the way.

What is the difference between natural sciences and economics in terms of predictability?

Natural sciences have stationary laws that allow for more definitive conclusions, while economics lacks such laws and is characterized by a limited number of historical precedents, making it difficult to create accurate models and predictions.

Why did macro models fail to predict the recovery from the 2020 pandemic?

Macro models failed to predict the recovery because they anchored on the unemployment rate, which had never reached the levels seen during the pandemic. The models extrapolated beyond their empirical base, leading to inaccurate forecasts.

What is the speaker's stance on the use of models in economics?

The speaker criticizes the reliance on models in economics, arguing that no single model can provide a definitive macro answer or forecast. Instead, economists should embrace the complexity and uncertainty inherent in the field.

How does the speaker define 'rational optimism'?

Rational optimism is defined as the balanced understanding that while future crises are a rational concern, it is not rational to assume them. It involves embracing uncertainty, understanding the full distribution of risks, and not outsourcing judgment to alarmist headlines.

What advice does the speaker give for consumers of economic news?

The speaker advises consumers of economic news to be critical and not to take alarmist predictions at face value. Instead, they should dare to be rational optimists, questioning the drivers of potential crises and the pathways to and from risk.