WASHINGTON -- The economy's slide has one familiar

feature: Few, if any, economists predicted it. We should

not be surprised. Economists routinely miss the turning

points of business cycles and, indeed, have missed most of

the major economic transformations of the past

half-century, whether for good or ill. The great boom of

the 1990s was barely anticipated. The same was true of

other upheavals: sporadic "energy crises," the sharp rise of

inflation in the 1970s, its dramatic fall in the 1980s, and

various shifts in productivity growth.

At present, most forecasts are bravado and bluff. Hardly

a day passes without the government or private industry

disgorging some economic statistic that is instantly seized

upon to demonstrate that (a) "the worst has passed" or (b)

"the economy is tanking." In the first quarter the economy

grew at a 2 percent annual rate -- better than expected. A

good omen. But in April unemployment rose to 4.5 percent --

worse than expected. A bad omen. On the other hand, stocks

have recovered from recent lows -- a good omen. The truth is

that no one knows.

Even the brightest mortals cannot peer far into the

future. As recently as last October the "consensus forecast"

of 52 economists surveyed by the Blue Chip Economic

Indicators -- a newsletter -- was for a strong 3.5 percent

growth in 2001. The "consensus" is now down to 2 percent, and

though few economists yet predict an outright recession

(usually defined as two consecutive quarters of falling

output), this clearly is a possibility.

Their picture of the future usually reflects the recent

past, because that's what they know. They underpredicted

inflation in the 1970s because it had been low in the '60s

and they expected it to stay low. They overpredicted

inflation in the 1980s because it had been high in the '70s

and they expected it to stay high. This backward vision

also explains the optimistic bias of today's forecasts.

Because the economy thrived in the late 1990s, economists

expected it to continue thriving.

Perhaps the trophy for optimism goes to Merrill Lynch's

economists. "We're sticking with our view that the U.S.

economy will avoid an outright recession," they wrote

recently. "Payrolls (payroll jobs) fell for the second

consecutive month in April, plunging by 223,000. There have

almost never been two consecutive payroll declines that

didn't mark a recession. But the Fed has never eased

(interest rates) as rapidly as it is currently doing, which

is why we still think a contraction can be avoided." We'll


As a rule, forecasters rely on computer models that try

to predict how, say, a rise in consumer spending might

affect profits, investment and employment -- and how these

changes might feed back into inflation, stock prices,

interest rates and (again) consumer spending. The idea is

that present behavior reflects past behavior, as reflected

in various economic statistics. This is not as simple as it

sounds. Statistics are incomplete, and behavior changes.

Every business cycle creates new experiences and

expectations that alter how people and businesses think and

act. What was true a year ago or a decade ago may no longer

be true. Optimism and pessimism feed on themselves. "In long

business (expansions), there will be a lot of investment --

and then overinvestment," says Victor Zarnowitz, a retired

economist from the University of Chicago. Certainly that's

the case now -- computers and telecommunications equipment

being obvious examples.

Worse, forecasting models exclude almost everything

interesting and disruptive in life: politics, nationalism,

technological change, the weather, greed, fear, ambition,

ignorance and stupidity -- to name a few omissions.

Naturally, blunders occur. To explain and excuse these

lapses, economists often blame "shocks." A "shock" is a

catchall label that covers almost anything that the model

misses and that spoils the forecast. Energy and food "shocks"

(big shifts in prices) are common varieties. "Shocks"

contradict the premise of the models, which is that

economic change is gradual and comprehensible.

Most of the time it is. This is why economists and

models seem right more often than not. Today is usually

like yesterday, which was like the day before. Inflation

won't jump from today's 3 percent to 13 percent in a few

months. Because this is true, economic forecasts cluster

together. The clustering also reflects herd behavior. To

stray too far from your peers is to risk looking foolish --

alone. There's less danger in being wrong with everyone


We call this exercise forecasting, but of course it

isn't. It's telling people what they already know or might

know by examining the available information. It creates an

illusion of understanding. The trouble is that there are

times when radical and dramatic changes do happen, and at

these moments economists are almost as clueless as everyone

else. Their crystal balls are cracked. Forecasts are least

reliable when they are most needed.