Economists are most dangerous when they lecture us about matters outside their speciality

Economists are most dangerous when they lecture us about matters outside their speciality
Economists are most dangerous when they lecture us about matters outside their speciality

The latest Image of Professions Survey by Roy Morgan has the usual results: most of us trust health professionals and teachers, while few of us rate anyone involved in selling, whether it be cars, real estate or advertising.

Those who bring us the news, or their version of it, and our elected representatives also have low ratings on ethics and honesty. No great surprises.

I’d love this survey, which from time to time adds new professions to the poll, to include a rating for economists. I’m sure they’d be right down there with real estate agents and advertising people who score single-digit trust ratings.

The problem with economists is that they thrust themselves in front of TV cameras and radio microphones to present themselves as expert analysts and forecasters. Their dismal track records don’t phase them.

The problem is exacerbated when they insinuate themselves into areas beyond their alleged expertise, real estate being a prime example.

An even bigger problem is that journalists let them do it.

Chattering economists and lazy journalists combine to create the greatest source of misinformation in the nation.

This week presented the latest example. Apparently unable to await the release of key data by the Australian Bureau of Statistics, media springs to life in the days preceding the publication of the real figures to present the forecast of economists to a breathless public. This week’s example was the official data on inflation.

Chattering economists and lazy journalists combine to create the greatest source of misinformation in the nation.

A gaggle of 12 economists surveyed by media earlier in the week allowed journalists to pump out a warning that inflation was about to shoot beyond the 2% to 3% range beloved by the Reserve Bank. This was serious because it might influence a decision to raise interest rates. The annual inflation rate, we were told, would be 3.2% after a big rise in the March quarter.

I would have bet my house they would be wrong, because they are with unerring consistency. And of course they were. The annual inflation rate is still below 3% and we can all sleep easy at night.

But neither this nor all the other instances of faulty analysis and mis-forecasting will deter the average economist, described by one observer as “an expert who will know tomorrow why the things he predicted yesterday didn’t happen today”.

Economists are most dangerous when they lecture us about matters outside their speciality. And don’t economists love to pontificate on the Australian property market. The first clue that they’re frauds is that there is no such creature as the Australian property market.

The single biggest message in the latest price data on big city Australia, Australian Property Monitors’ House Price Report covering the March Quarter, is the high degree of segmentation from one market to the next.

Economists discussing the APM figures focused on the 2% rise in the “national” median house price for the quarter and the 11.3% annual rise.

It sounded like evidence of the much-trumpeted national property boom but proper analysis shows it isn’t so.

While the weighted average across the eight capital cities is a quarterly rise of 2% in house prices, three cities had declines in their median prices, one recorded no change and two had increases around 1%. Only two cities, Sydney and Melbourne, recorded significant increases.

The weighted average rise in annual terms is 11.3%, but six of the eight capital cities had growth well below that figure. Half the cities grew 4% or less. The weighted average was inflated by Sydney’s 17% annual increase.

There are similar variances in the figures for apartments. In the March quarter, three cities recorded median price decreases and three others recorded increases below 0.3% - but when economists talk about “the 8.3% annual rise in apartment prices” it creates the false impression of a raging market.

In truth, Sydney is the only city with a strong apartment market, with an annual rise in the median price of 12.7%, according to the APM figures. Every other city recorded an annual result below 5.5%, including two where median prices fell and two others where annual growth was 1% or less.

Sydney’s having a property boom but the nation is not.

There’s certainly no boom in Canberra, where median prices have dropped for both houses and apartments. Nor in Hobart, where the median apartment price is down 8.4%. Nor in Darwin or Adelaide where median prices have risen only marginally. Perth and Brisbane have had solid growth, but well short of boom status.

But flick on morning television tomorrow and you’ll see economists babbling about the national property boom and the need for governments to take action to stop foreign investors, or eradicate negative gearing, or deal with the alleged housing shortage, or the other imagined evils that are causing this national crisis.

As someone once observed: “Economists are like cross-eyed javelin throwers: they don’t win any accuracy contests but they keep the crowd’s attention.” For all the wrong reasons.

You can contact Terry via  email or on Twitter. 

Terry Ryder

Terry Ryder

Terry Ryder is the founder of hotspotting.com.au.

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Terry Ryder Economy

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