Horatio Hammer, of the law firm, Hammer and Tongs, enjoys the routine spectacle of business and economic expectations before the fact, and analysis after the fact.
“America is blessed,” Horatio said in his deep baritone voice, “with many seemingly well-informed persons who make fools of themselves regularly predicting what will happen or explaining what has happened.”
“That’s a result of rational expectations by the media, employers, governments and the public,” I responded testily.
“It is expected those who finance or study business and government activities will have some reasoned anticipations about the future as well as plausible stories about the past.”
“Anticipations are driving us wild,” Horatio sang in an off-key imitation of Carly Simon.
“Wall Street is filled with analysts who offer their anticipated quarterly figures for earnings by firms. Then, when a firm does not meet expectations, the price of its stock is expected to fall. If it doesn’t fall, the analysts have stories to tell why the price rose.”
“That’s a good system,” I said. “It provides information to prospective buyers and sellers in the market.”
“Are those expectations worth more than expectorations?” he asked. “Do you regularly see data on how often expectations exceed or fall short of actuality?”
“No, I don’t,” I admitted. “But I’d expect each analyst and each firm with analysts on the payroll will monitor that performance carefully. I know the better economic forecasters study how much and in which direction (up or down) their forecasts miss the mark.”
“Miss the mark?” Horatio smiled. “Which mark? Business and economic numbers are always being restated, revised and re-estimated. Yesterday’s numbers are not those you’ll find tomorrow.
“And,” he continued, “when numbers are subject to revision -- days, weeks, months, even years from now -- how can you trust what is forecast from yesterday’s numbers? As for the stories told about the past --- well, those are about as reliable as Mother Goose.”
“What would you have?” I snarled.
“Now, that you ask,” he answered, “I’d hold back on all the forecasting. Stick with what is known. Don’t go inventing fantasies about the future. Do a better job of explaining the past.”
“That, sir,” I replied with some formality, “is nonsense, and you should know better.”
Horatio harrumphed, but let me continue.
“Of what value are better stories about the past than to lead us to improved expectations about the future? We tell folktales to give guidance about future behavior. It is better to build a brick house well than carelessly of straw or wood, if your residence is subject to strong winds. Don’t fraternize with wolves in the forest. Don’t steal from a giant without expectations of being pursued.
“The past is the only guide we have to the future. There is no way we can face the future without good stories about the past and we must always depend on the facts as we know them, even if we don’t trust them fully.”
Again, Horatio harrumphed, but did not pursue the topic.
Opinions are solely the writer's. Morton Marcus is an economist, author and speaker formerly at the Kelley School of Business, Indiana University. He can be reached at firstname.lastname@example.org.