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Predicting things accurately is hard and saying there are 50/50 odds makes it sound like you’re just guessing. Why not say “there’s a one in three chance” instead?
According to many in the media, Lawrence “Larry” Summers is an economic Nostradamus. He single-handedly predicted inflation. His clairvoyance has been praised by all sides. The Wall Street Journal, wrote “Larry Summers Nailed Inflation”, The Boston Globe stated “Larry Summers was right on inflation” and New York Magazine said, “Maybe We Should Have Listened To Larry Summers On Inflation.” They are, I have to admit, all partially right. Larry Summers did predict inflation. In March 2021, Summers predicted a ⅓ chance of stagflation – a combination of inflation and economic contraction… and a ⅓ chance of a recession, and a ⅓ chance of no inflation and steady economic growth. In short, he predicted every possible outcome and was still only partially correct on one of his 3 guesses.
Thankfully for us all, this hasn’t stopped Summers from making even more predictions. Last week Summers came back with another blockbuster prediction: there’s a chance the Federal Reserve will actually achieve a soft landing. What chance you ask? Well, a one-in-three chance, of course.
At some point in Summers’ career in the public eye, he clearly learned that nobody loses credibility for an incorrect prediction, but you will be lauded when you’re proven right. So he’s embraced it. Summers makes predictions with abandon, mostly using his one special trick; if you predict there’s a one-third chance of something happening you’re safe from either possibility. Either the prediction bears out, and you were right in saying it could occur, or it doesn’t pan out and you were right for saying there was a better-than-not chance of it never occurring. It’s the safety of saying there’s a 50/50 shot of something occurring without the primitive-sounding odds of a coin flip. Real academics aren’t so pedestrian as to rely on whole round numbers like 50%, instead, they convey their nuanced takes with something a little more advanced, a trickier fraction more suited to the intellectually gifted: ⅓, or 33.333%.
Already knowing of Summers’ famous 33% chance of inflation, when I heard last week’s prediction was also a 33% chance I was compelled to take a look at Summers’ other past predictions. Has he used this number as a crutch for his off-the-cuff economic soothsaying? Unfortunately, my focus on Summers’ field of expertise doesn’t allow me to mock him for many of his bold predictions, including his claim that Trump wouldn’t serve his full 4-year term as president or his prediction on how long it would take to develop a Covid vaccine (he claimed it was unlikely to be before April 2021; what was it about Covid that made so many economics professors pretend they were a doctor of medicine instead of a Ph.D. in Economics?)
But, even leaving out Summers’ more colorful prognostications, he still manages to make an impact. In 2011, Summers said, “the economy has at least a 1-in-3 chance of falling back into recession.” In 2016 Summers once again said there was a 1 in 3 chance of a recession. The economy did not fall into a recession after either prediction. In 2018 Summers mixed up his general ⅓ predictions by tweeting his belief that there was a 50% chance that the US would have a recession by the end of 2020. He later revised this prediction a mere six days later, increasing the chances to 60%. The following year, Summers returned to his recession prediction baseline of ⅓ in an interview with Bloomberg. Summers’ predictions did come true this time, as a result of the COVID-19 pandemic, but the contraction lasted a mere two months, and Summers was almost certainly not anticipating a global pandemic-induced recession. In 2021, Summers made the 3-way prediction we discussed at the beginning, followed by another ⅓ chance prediction of a soft landing he made via tweet last year. Summers also predicted a 70% chance of a recession this year back in April (yes, ⅓ plus 70% adds up to 103% but I think we can let it slide), something the Federal Reserve now sees as unlikely to occur.
When Summers’ whole array of predictions are laid out, his predictive abilities suddenly seem less than stellar. Maybe it’s time the media examine some of the times he’s been wrong, not just the infrequent times he’s right. I’d also like to see Summers change his ways and not simply shoot from the hip with whatever fraction he’s feeling that day, but I won’t hold my breath. Still, it is possible; I’ll put the odds at, say, 1-in-3.