But this just isn’t true. Experts have no special qualification or competence when it comes to foreseeing future events.
To put it differently, the old saw about not being able to derive an “ought” from an “is” deserves to be modified for expert forecasters: we cannot derive a “will be” from a “has been.”
Experts might be especially incompetent at forecasting because their expertise often leads them to dismiss arguments and evidence presented by non-experts.
For example, muni market experts constantly complain that “Carney doesn’t understand the muni market.”
This is surely correct. There are lots and lots of facts about munis that I don’t know and don’t ever expect to know. I’ve never sold a muni bond, I’ve never drawn up a pitch for a local government mandate, and I’ve never put together a muni bond portfolio. I wouldn’t know how to do anything of these things.
But since there is very little evidence that this kind of first-hand, ground-level knowledge creates predictive capacity, the dismissal of non-expert opinion is foolish. In fact, it can be downright dangerous when it effectively shuts out heterodox opinion in illiquid or opaque markets like those for munis and CDOs.
Experts are also subject to a host of unrecognized biases, not the least of which is self-interest. If you work on a muni sales desk or a mortgage sales desk, it is mighty tempting to believe that those warning of “waves of defaults” are crackpots. To adopt their thesis you would have to convince your boss that your firm should stop selling these products to clients—essentially arguing yourself out of a job.
Experts are very valuable—especially when it comes to the practical application of their experience in ordinary circumstances and transactions. But when they start claiming that they—and only they—know the future, look out!
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