Goldman Sachs lied to you. Okay, it didn’t lie, but in declaring the U.S. economy “recession-proof” in December, it set investors up for a fall. And it wasn’t the only one, because many analysts were predicting good things for in 2020.
Of course, none of them had accounted for the coronavirus. This was a “black swan” event, many ended up claiming. The thing is, “Black Swan” author Nassim Nicholas Taleb has explicitly said it wasn’t.
They, along with national governments, could have foreseen a global pandemic. But the fact they didn’t reveals just how useless their predictions are. So rather than trusting them the next time they open their mouths, we should take their words with a huge pinch of salt.
On December 31, Goldman Sachs published an analysis of the U.S. economy.
In it, the investment bank claimed that the main structural changes brought about by the “Great Moderation” of the 1980s — low volatility, sustainable growth, low inflation — are still in place. As economists Jan Hatzius and David Mericle wrote:
Overall, the changes underlying the Great Moderation appear intact, and we see the economy as structurally less recession-prone today. While new risks could emerge, none of the main sources of recent recessions — oil shocks, inflationary overheating, and financial imbalances — seem too concerning for now. As a result, the prospects for a soft landing look better than widely thought.
Yes, you read that right. On December 31 — the very day reports first emerged of a concerning “SARS-like” respiratory illness in China — Goldman Sachs was telling us not to expect a recession.
Such optimism now seems ludicrously naive. But this didn’t stop other analysts from adding their own predictions that the U.S. economy was in for a good 2020.
On December 15, The Washington Post’s economics correspondent Heather Long wrote that the U.S. economy “shakes free of recession fears in striking turnaround since August.”
Analysts quoted by Long were also upbeat. Gregory Daco, chief U.S. economist at Oxford Economics, said,
We are not headed toward a recession.
Meanwhile, National Economic Council director Larry Kudlow predicted 3% GDP growth in 2020.
And going back to October, Bloomberg Economics was predicting 2% growth for the U.S. economy in 2020.
How times have changed.
Basically, the one good thing about coronavirus is that it has revealed just how flimsy most economic forecasts are. It shows us that Goldman Sachs doesn’t provide insight into the future. Rather, it merely packages restatements of current and past financial data. It sells extrapolations of a past masquerading as the future.
Of course, numerous analysts have claimed in their defence that the coronavirus is a “black swan.” On March 4, VC fund Sequoia Capital declared it “the black swan of 2020.” At the end of February, Miller Tabak chief market strategist Matt Maley said the coronavirus outbreak “is a true black-swan event.”
However, Black Swan author Nassim Nicholas Taleb described it as a “white swan” and said it was preventable.
Indeed, the Global Preparedness Monitoring Board warned in September that a global pandemic presents a “very real threat.” It predicted up to 80 million dead worldwide and a 5% hit to the global economy.
Worse still, the GPMB’s UN-commissioned report lambasted the lack of political and financial preparedness. And sadly, it seems no one really listened. Least of all Goldman Sachs and other “forecasters.” No, they were too busy raking in the money that comes with talking up the market.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.