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Managerial Application 6.1 Economic Forecasting: The Art and the Science Many do not understand why disagreement among Computers may generate economic forecasts, but they do so forecasting economists is common and why this on the basis of programs written by economists. Computer- disagreement can produce divergent economic forecasts. generated economic forecasts are only as sophisticated as These concerns reflect too little appreciation of the difficulty the data employed, model analyzed, and the subsequent of economic forecasting. In the real world, "all else held analysis. equal" doesn't hold very often, if ever. To forecast GDP, Given the criticism often aimed at forecasters, it is for example, one must be able to accurately predict the ironic to note that the success of economic forecasting is future pattern of government spending, tax and monetary responsible, at least in part, for some of its failures. Users policy, consumer and business spending, dollar strength have come to expect a nearly unattainable level of forecast against foreign currencies, weather, and so on. Although accuracy. At the same time, users forget that forecasts can, by typical patterns can be inferred on the basis of past trends, themselves, have important economic consequences. When an unexpected drought, winter storm, or labor strike consumers and businesses cut back on spending in reaction can disrupt economic activity, and upset the accuracy of to the forecast of an impending mild recession, for example, economic forecasts. they change the basis for the forecasters' initial prediction. By In light of the uncertainties involved, it seems their behavior, they may also cause a steeper recession. This reasonable that different forecasting economists would is the forecaster's dilemma: The future as we know it doesn't accord differing importance to a wide variety of economic exist. In fact, it can't. influences. Forecasters' judgment is reflected not only in the interpretation they give to the data generated by complex See: Phil Izo, "Economists"Outlook Grows a Bit Rosies," The Wall Street Journal computer models but also in the models themselves. Online, October 12, 2007, http://online.wsj.com