Can forecasting provide anything worthwhile?

• Author: Adams, Tucker Hart
• Position: The ECONOMIST

WHEN I EMERGED FROM GRADUATE SCHOOL and went to work as the research economist for a big bank holding company, I determined to build the definitive computer model of the national and regional economies. It was going to be better than what anyone else had done and forecast with amazing " accuracy.

For my first few years there, I worked on my model. R-squares and t-statistics improved, kurtosi.s declined and no breath of multiple correlation was allowed to persist The models didn't forecast the future particularly well, but they were brilliant. And dialing up the giant mainframe in Lexington, Mass., and playing with its huge data base with my newly acquired skills was a lot of fun. (I also enjoy balancing my checkbook and working sudokus and crosswords.)

Soon after my experience with the bad employment data, I learned another important lesson that hadn't been taught in graduate school pay attention to the people who have to meet a payroll every week, no matter what the official data are telling you. I was speaking to a group of homebuilders in a small community north of Denver at a time when Colorado and the Mountain West were in the grip of a serious housing recession. When my staff brought me the data for my speech, Longmont was a shining light in a black hole of negative statistics. Housing starts were up 225 percent over the previous year!

I introduced my remarks to the homebuilders by saying how pleased I was to be speaking to a group who had maintained their business at a high level when builders around them were struggling. 1 laid it on pretty thick, having taken the speech course that says start out by making your audience feel good about you. After a few sentences* a crusty old guy in the back of the room

laded jeans, boots and a tape measure on his belt -raised his hand.

"I don't know much about all these statistics,'* he said, "or about what it means to be up 225 percent. But I can tell you that last year we built four houses in Longmont. and this year we built 13 and one builder built 12 of those and homebuilding ain't a doin' well in Longmont!"

Today, I still look at the results of other economists' models of the economy. But I've long since ceased maintaining my own models. I take what they con elude, what I know about the...