Surveys or Specifics: Do Economies Respond to Consumer Expectations or the Facts at Hand?
In order to gain insight into the future state of the economy, some analysts utilize consumer and business surveys. Randomly selected consumers and businesspersons are asked to provide their views about where the economy is heading.
If a survey shows that, most of those surveyed express optimism it is regarded as good news for the economy. Conversely, if the majority of those surveyed are pessimistic it is taken as a bad omen for future economic activity.
It appears that the information regarding future economic conditions is dispersed. Hence, the chances of any particular individual having an accurate picture of the state of the economy are low. Hence, it would appear that a large number of individuals selected randomly has a high likelihood of securing an accurate picture of future economic conditions than one individual.
It is quite possible that a group of individuals will have more information than any given individual. However, more information does not necessarily mean a more accurate knowledge of the future.
To ascertain the facts of reality the information must be processed by means of a theoretical framework. Whether a forecast “makes sense” is determined not only by the amount of information available but also whether a theory, or a thinking process, is in tune with the facts of reality. As long as the individuals surveyed have not disclosed the theories behind their views, there is no compelling reason to regard various confidence or sentiment surveys as the basis for the assessment of the future state of the economy.
Also, note that various consumer and business surveys are considered useful because these surveys could establish likely changes in the demand for goods and services. Thus, a strengthening in the consumer and business confidence indexes can be associated with a strengthening in the demand for goods and services. Conversely, a weakening in the indexes raises the likelihood that the demand for goods and services is going to weaken. Given the view that demand creates supply it seems that by establishing the likely strength of the confidence indexes one can ascertain the likely future course of the economy.
However, following the Say’s law we know that increases i
Article from Mises Wire
