This week’s issue of Businessweek has an interview with Alan Greenspan, in which there was an interesting exchange on his ability to forecast future events.
You also told the commission that you were right 70 percent of the time and wrong 30 percent of the time. What were you wrong on?
Forecasting the next week’s stock market change. I’ve been in the forecasting business for more than half a century. If I get it right 70 percent of the time, I consider that very successful. People don’t realize that we cannot forecast the future. What we can do is have probabilities of what causes what, but that’s as far as we go. And I’ve had a very successful career as a forecaster, starting in 1948 forward. The number of mistakes I have made are just awesome. There is no number large enough to account for that. But I’m right more than half the time.
Some people said you were giving yourself a C-minus, but maybe in the business of predictions, a C-minus is better than it sounds?
Forecasting our futures is built into our psyches because we will soon have to manage that future. We have no choice. No matter how often we fail, we can never stop trying. The ancient Greeks had the Oracle of Delphi, who allegedly had the capability of seeing into the future, and military leaders used to go to her. And then there’s Nostradamus, two millennia later, who had very much the same aura. Fortunetellers and stockpickers today make a reasonably good living. Physical scientists can forecast with some precession. But in economics, we are extraordinarily fortunate that we succeed a majority of the time. (I think there’s room for debate on this one)