I am not a big fan of the Wisdom of Crowds. Not the book, which I found thought provoking, but the concept itself — its way too EMH for me.
Crowds are good at forecasting their own collective behavior. Bull and bear markets ARE crowd behavior, and markets do what they do as a result of the actions of the masses. But in forecasting elements other than their own behavior, they leave a lot to be desired. There way too many examples of the crowd flipping from “wisdom” to madness and back.
Which brings us to our question: Can the crowd forecast a double dip recession?
I doubt it. The only time we had a double dip recession in the post war era was 1980-82. Looking at the long term history of recessions, we had 3 double dips over the past 150 years. But the bigger issue is whether crowds are any good at forecasting anything outside their own behavior.
Question: When was the last time the crowd correctly forecast an ordinary recession? Given this track record, why should we believe they can forecast a double dip recession?
Hat tip Economix
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