The Wall Street Journal ranked 51 of the nation’s leading economic forecasters on the accuracy of their 2008 economic forecasts using two key statistics: 2007-2008 fourth quarter-to-fourth-quarter real GDP growth, and 2008’s ending unemployment rate. The actual change in GDP growth was -0.8 percent. Just one forecaster was in the margin of error; all the rest expected positive real growth. On the unemployment rate, every forecaster expected a much better outcome than the 6.9 percent it actually was. In sum, 101 of the 102 estimates were wrong in the same direction.
A few others, however, got it very right. In The Sages: Warren Buffett, George Soros, Paul Volcker, and the Maelstrom of Markets, Charles R. Morris provides a short, insightful biography of each of these eminently successful men. He then advocates for learning from them as he concludes with a chapter on what’s wrong with our current economics.
Although many prominent forecasters were providing woefully inaccurate forecasts even when the credit crunch was front-page news, Buffett, Soros and Volcker had been warning about the impending crisis for years. Morris argues that they are outstanding successes in part because they’re not overly reliant on a certain market model or particular school of economic thinking, but instead The Sages take a broader view and more commonsense approach. Volcker’s victory over inflation as chairman of the Federal Reserve laid the path for stable global economic growth in the 1980s and 1990s. Buffett and Soros have been wildly successful in the markets, with markedly different investment styles—Buffett the value seeker, in for the long term, and Soros with a keen sense of opportunity, always on the lookout to move in and out of positions quickly. Their core belief is that markets are often wrong. Judging by their success, Morris believes they are right.
While The Sages may be best understood by the layperson who has some insight into how markets work, this is a very timely book with a compelling message for us all.
Ellen R. Marsden writes from Mason, Ohio.