A 2003 study by researchers at the Federal Reserve Bank of Atlanta found that the Blue Chip Consensus Forecast, which polls some 50 economists each month, is consistently better than any of its individual members. The researchers dubbed that result a "reverse Lake Wobegon effect": everyone was below average. During economic turning points — like the one we're currently in — the individual forecasts veered further off the mark….
The problem is twofold. First, it's hard to predict the future. Second, it's really hard to predict the future when so many parts of the economy are in flux. "This has been an extraordinarily difficult period for forecasters," says Harvard economist James Stock. "Our models aren't really designed for predicting massive changes." Philip Joyce, a professor of public policy and administration at George Washington University, figures that in normal times, budget projections a couple of years out tend to be pretty reliable, at five years less so and at 10 years not much at all. "But these aren't normal times," he says. "In recessions, even the short-term numbers aren't very good, because a lot of the factors that go into them are based on assumptions that the economy will behave within some narrow band of reality, and the way it behaves is outside of that band."
The fundamental problem is that economic models — series of equations meant to describe how different parts of the economy fit together — depend on historical data. If you want to know how high unemployment is going to be six months from now, you start with how high it is today. If the economy isn't stable and the old relationships don't hold as well as they used to, then the models break down. In recent years, there have been great advances in economic modeling, says Stock, but forecasts haven't necessarily gotten much better since the economy itself has grown more complex.