24 Aug 2015

Scott Sumner, Vindicated

Economics, Federal Reserve 8 Comments

This is the closest I’ll come to an “I told you so” victory lap. (In the future I may refer to the warnings people in my camp have been issuing, especially if people claim I’m making it up, but I will try not to be snarky about it.)

Here’s Scott 9 days ago, talking about China, but then he generalizes:

I’m a bit more optimistic [about the Chinese economy], as I think the reform process will continue. They’ll avoid the middle-income trap. But they haven’t yet even reached the trap—a lot more growth is ahead. If you want to know when that day of reckoning will finally arrive in China, don’t come here looking for answers. I will miss the collapse, blinded by the EMH, just as I missed every other dramatic economic shock in my entire lifetime. My predictions are boring, and always the same:

“More of the same ahead”

My predictions are usually right, but they get no respect, and don’t deserve any.

One thing as you guys slug it out in the comments: It’s not enough to say, “But the S&P500 is up if you go back 18 months!” (or whatever). You would also “be up” if you had bought Treasuries 18 months ago. Most people buying equities do not expect the market to be this volatile, and given that it is, you need to earn a lot more than “breaking even over 18 months.”

8 Responses to “Scott Sumner, Vindicated”

  1. Innocent says:

    Dr. Murphy,

    Well seeing as I still say we should not have another recession for 9 months to 2 and three quarters years from now I only see this dip as a just that. I do not know that it will plunge everything down. I do think that stocks were overvalued but the real question is will this slide continue for another couple of days or will the market say that this was the over due correction and be right back up to 18,000 ( the DOW ) in 2- 4 weeks if that long…

    This could be the start of another big dip that started in 2007 or it could be the same as what happened in 2014, a brief drop due to world jitters and then a shrug as the ‘fundamentals’ of the USA are ‘sound’. Please note I placed both of these in quotes as I disagree that the fundamentals are anything but sound.

    I lean to this being a blip… Since my own time table says something else lol. But since i have been getting ready for this ‘blip’ for quite a while I am not all that shocked by it. Could it be the straw that broke the camels back, sure. But I do not think this is it…

    However China is anything but prepared for this. They went full bore Keynesian and I think they are going to suffer because of it.

  2. Anonymous says:

    Yup, markets are a random walk and hence my predictions are worthless. Vindication is sweet!!

  3. Scott Sumner says:

    I guess I forgot to include my name under the previous comment.

  4. Major.Freedom says:

    When your intellectual horizon is constricted by general equilibrium, random walk, aggregate-based conceptualizations, you are aware of no reason why there should be any necessary outcome of existing activities.

    Status quo is not arrived at by any reasonable, pragmatic basis. It is arrived at by necessity in one’s chosen tools.

  5. Major.Freedom says:

    “My predictions are usually right, but they get no respect, and don’t deserve any.”

    I giggled.

    When the world has historically appeared as growth for many years, then relatively quicker, sharp corrections, then if you predict “same as usual” everyday, then of course you will be right statistically more often than you are wrong.

    If I predict every second “more of the same”, then my prediction accuracy will be 99.9999%. Sure, once every 5 or 10 years I will be woefully wrong, but look at how accuracy I would be!

    You should trust me the most, and put all your money in mutual funds. You will make gains on more days than you make losses!

  6. Transformer says:


    Where do you think the Dow will be in 12 months time ? What about the Chinese stock market ? What are your predictions on the inflation rate in 12 months time?

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