The purpose of prediction

The purpose of making prediction based on theory is that it is a test of the theory. I read this, somewhere. Anyway, it means that if events turn out as predicted, the theory is not rejected and may deserve increased attention.

Back in the Spring of 2016 I said the economy had hit bottom and things were picking up. I predicted vigor. I also said it would be a couple years before the vigor was noticeable, and that it would last for several years. My prediction was based on the theory that when financial cost in the economy is low but rising, growth is good; and when financial cost is high it consumes money that otherwise might have gone into growth.

Anyway, this morning I find Randall Quarles in a speech of 18 October 2018, saying:

... in February, I characterized the U.S. economy as being in a "good spot" and asked if the economy had reached a positive turning point following an extended period of post-crisis slow growth. I argued that while it might be too soon to call a turning point, there was a definite possibility of an upside surprise.

So now that we are fairly deep into 2018, where do we stand overall? My view has not changed all that much from February. While many other forecasters had to revise up their forecasts over the course of the year, my own outlook is basically unchanged, because the economy is evolving essentially as I expected at the outset of the year. The economy remains in a good spot...

The predicted improvement became noticeable to Randal Quarles early in 2018. Right on schedule.

Quarles also says

How long can this strong growth be sustained? ...

... I see many reasons to be optimistic about the growth of the potential capacity of the economy over the next few years. In part, my optimism is rooted in the view that many of the factors that have been weighing on potential growth since the financial crisis could be lifting. So, have we reached the turning point? While I believe the issue remains unresolved, the recent evidence is encouraging.

The strong growth will last as long as people are willing to expand their debt obligations.

// See also: my Vigor page.