Thursday, September 20, 2007

Was he studying underwear fifty years ago? 

Of all the things Greenspan said in the Daily Show interview, the one I liked the best was this:
The trouble is that we can�t figure that out. I�ve been in the forecasting business for 50 years. � I�m no better than I ever was, and nobody else is. Forecasting 50 years ago was as good or as bad as it is today. And the reason is that human nature hasn�t changed. We can�t improve ourselves.
Contrast that with a post this afternoon from Real Time Economics:
[NPR] Science correspondent Robert Krulwich explained: �What [Greenspan] would do, is he would keep his ear as low to the ground trying to figure out � what are people really up to? Men�s underpants was the one that really got to me. He once told me that if you think about all the garments in the household, the garment that is most private is the male underpant, because nobody sees it except people like in the locker room, and who cares? Your children need clothes. Your wife needs clothes that have to change. The children grow. You need clothes on the outside. But, the last purchase that you don�t have to make is underpants. � If you look at the sales of men�s underpants, it�s just pretty much a flat line, it hardly ever changes. But on those few occasions where it dips, that means that men are so pinched that they are deciding not to replace underpants. And he said that is almost always a sort of foreshadow of �here comes trouble.� � It�s not that he was right or wrong: I just loved the way he would sneak around human behavior by looking at things like that.�
OK, I can hear you snickering "THAT won't work in Canada", but you have to question the thought. But I think it's also quite strange in this way: It assumes that you can tell the economy's future by looking at consumption trends, yet it's investment booms and busts that tend to be the most pronounced before business cycle peaks and troughs. Maybe underwear leads a little, but sales are normally considered a coincident indicator.

I just can't see how this works.