Why didn’t economists see the crisis coming?

The economy suddenly moved from an over 9% growth in the third quarter of 2008 to an almost as serious decline, -6.4%, in the first quarter of 2009, that is in only six months. Few are those economists, however, that anticipated things would be this bad.

Business Magazin weekly writes in the issue that comes out tomorrow that although they all had the same data available, few economists throughout the entire world actually managed to predict the worst crisis in history, and Romania was no exception. After several years of economic growth, few were those in early 2008 that dared say we would see a shift and growth would turn into decline. Why did the crisis slip through the economists’ fingers? “There’s this very interesting phenomenon that is hardly researched, i.e. group behaviour. If one analyst forecasts the same things as three hundred others and they are all wrong, nobody blames him. If he stands alone and is wrong, everybody points their fingers at him,” says economic analyst Aurelian Dochia, 59, member of BRD-SocGen’s Board of Directors and former advisor of World Bank, EBRD and OECD. Another cause for the failure of most economists to foresee the crisis resides in the fact that most of them work for banks and have to comply with their employers’ communication policy. “Economists are associated with various financial groups, they work for them and you cannot say your bank is wreaking havoc with doubtful financial instruments,” says Florin Pogonaru, chairman of the Businesspeople Association. Valentin Lazea, NBR’s chief economist, says that the economists’ research is based on statistics, which in Romania, nicknamed “Europe’s tiger”, looked good over the last few years, so that the following years seemed to come with growth. “You can’t have something bad come out of a past that looks good,” he says. On the other hand, most economists tend to forget quickly, says Lazea, and the crisis in the thirties, similar to the current one, was confined to the history books. Still, most of those interviewed by Business Magazin feel that economists should not be made into ‘scapegoats’, particularly because they are the ones that will provide solutions to overcome the crisis. “Economic science operates with lots of approximations, it’s not like physics or chemistry, with lab experiments. The economic science should not be blamed, life will show which paradigm is the best,” says Daniel Daianu, MEP and former finance minister. Read more in Business Magazin weekly.