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Economic outlook fuels war of wits
U. of C. panelists spar on skills at forecasting
By Delroy Alexander
Tribune staff reporter
Published December 5, 2002
Rarely do economists agree, but seldom do they publicly lock horns on past and present predictions.
In an unusual turn of events Wednesday, a meeting of the minds turned into a battle of wits, as two of the University of Chicago's finest traded barbs on their ability to see into the future.
Noted scholar and professor of international economics Robert Aliber could hardly have been more pessimistic in forecasting a horrible year for the stock market and the U.S exchange rate. The economy, he argued, will grow a lackluster 0.8 percent in real gross domestic product.
Yet in sharp contrast, a "mini-boom," was predicted by Joel Stern, a former U. of C. graduate and current financial adviser to investors such as the California Public Employees Retirement System.
He said stocks would rise by at least 15 percent, the economy would grow a robust 4 percent and corporate profits would power ahead in double-digit figures.
While Stern has been publicly forecasting the future of the economy at the university's annual Business Forecast luncheons for more than two decades, Aliber is a relative newcomer, joining the roadshow in December 1999.
It was clear from the two presentations that more than mere numbers are on the line--so are reputations.
And Aliber was not shy in questioning Stern's skills as a forecaster.
In 1999, when the Dow Jones industrial average sat at around 11,000, Stern had forecast it would hit 12,800 the following year.
"I made the statement at that time that the bubble had burst," scoffed Aliber. "We've had this persistent difference where he always sees stock prices going up and I believe the bubble is not yet fully imploded."
To emphasize his point, Aliber said the Dow would fall in 2003 to between 5000 to 8000, and might even fall as low as 6625. The Dow closed at 8737.85 Wednesday.
"I do plead guilty to that charge," responded a clearly miffed Stern. "In his forecast for last year, [Aliber] was forecasting a recession for this year based on a negative wealth effect from stock prices."
Stern added: "We had largely the same negative wealth effect this year as we did last year, and I didn't hear that entering in the forecast for 2003. What happened? Did the wealth effect from stock prices become irrelevant?"
Aliber held his counsel.
For the past 42 years some of the University of Chicago Graduate School of Business' finest economists have tried their hand at predicting economic activity, with varying degrees of success.
While Aliber forecast dismal consumer spending, growth in the nation's unemployment rate to 6.8 percent and another tough year for major corporations, Stern was far more optimistic.
Stern expects unemployment to fall from the current 5.7 percent to 5.1 percent by the end of 2003.
The only thing Aliber and Stern agreed on Wednesday was the miserable state of the nation's trade deficit.
But neither had factored into forecasts a prolonged war with Iraq or a terrorist attack. That was left to corporate risk consultant and professor emeritus Marvin Zonis.
He expects Secretary of State Colin Powell to leave office as 2003 becomes "The Year of the War," with the U.S. going into battle against Iraq and continuing its fight against the Al Qaeda network.
Copyright © 2002, Chicago Tribune
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