Volume 42, Issue 8 - August 2007
|the Farnady Files
The Gypsy and the Dismal Science
Or the Birth of Economic Forecasting
by Dez Farnady
Because most of you cut all the classes you ever had in school that dealt with economics, it seems that it is up to me to fill in the gaps in your education on the subject. This is an important thing for me to do. You need to understand that microeconomics is the theory that best describes what your kid is trying to do to your wallet, while macroeconomics is what your boss actually is doing to it. Since economics (the “dismal science”) has you both coming and going, let me explain the how and the why of how it came and where it’s going.
[Writer’s Note: Academics and economists need not read further or comment on the following bit of literary fiction. They will probably not understand it because it is not complicated enough, and their comments will be ignored anyway.]
Once upon a time, somewhere back in the mid-1770s, some guy named Smith (of course it would be a Smith or a Jones) with a first name that was obviously Adam, being the first man to do this—was walking around the streets of London when he came upon an attractive young gypsy girl fortuneteller. History is not clear on whether she picked him up or he picked her up; nevertheless, they got together and their union gave birth to a love child we now know as Economic Forecasting. I am not sure of the child’s first name or last or even if the child is male or female. Regardless, the child has now grown to full adulthood.
With skills inherited from loving parents and the nickname “The Guesser,” the child needed to make a living. After trying its skills first at the racetrack, then in Monte Carlo and Las Vegas, and failing miserably, it decided to try its hand at the glass business.
Predicting the Unpredictable
Its next attempt was at working for a contract glazier. There the accuracy of the sales forecasting was thwarted by unexpected business developments. In a world where a couple of low bids can make the difference between an adequate year or a great one, every bid matters. So, while previous sales projections had predicted a banner year, how was our prognosticator to guess that the chief estimator’s wife’s personal recreational activities would upset the poor guy so much just before bid time that he would transpose a couple of labor numbers on a major project and his price would end up being so high that his bid would be thrown out?
Another large project looked really good but, having failed to predict that the transposition was going to occur, a more scientific approach was attempted. But even the most meticulous approach to a science that is dismal could not predict the fate of the next large job. How was anyone to know that some glazing outfit out of Podunk had an estimator who was the nephew of the general contractor’s estimator’s Aunt Agatha? His number came in five minutes before the bid time and just happened to be exactly 5-percent lower than the bid that up to then had been the lowest. Economic Forecasting could not figure out where that number came from or predict that it would be there, but it was just low enough. So the nephew got a job and our Economic Forecaster no longer had one.
Predicting the Past
Going back 50 years, it had miles of data with undisputable numbers clear up to today. With a newborn confidence, it just extended a half a century of numbers forward by continuing the curve of every graph. Aha, just project the past reality and create a trend into the future, spin it out and then once it is in print everyone believes it as the gospel … I wonder why that system didn’t work in Vegas …
the author: Dez Farnady serves as the general manger of Royalite Manufacturing Inc., a skylight manufacturer in San Carlos, Calif. His column appears monthly. Mr. Farnady’s opinions are solely his own and not necessarily those of this magazine.