Interview
"Catch-Up With David": with Chief Economist Jan Hatzius
- Jan Hatzius (Goldman Sachs Chief Economist) projects global economic growth will decelerate from approximately 4% over the previous two years to roughly 3.5% in 2019 and 2020.
- The primary driver for this slowdown is the US economy reaching or slightly exceeding full employment, necessitating a reduction in growth to prevent labor market overheating.
- The Federal Reserve is intentionally raising interest rates to cool the US economy, creating negative spillover effects on emerging markets.
- Recession risk within the next 12 to 24 months remains low under the current trajectory of a "gentle slowdown."
- A recession is defined by Hatzius as a sharp "boom followed by a bust," rather than a gradual deceleration from a high growth plateau.
- Hatzius warns that extending growth significantly above trendline increases the probability of a bust occurring further in the future.
- 2018 forecast performance showed specific areas of success and error.
- The firm correctly anticipated US growth, China's slowdown, and expansive monetary policy outside the US.
- The Fed executed more rate hikes than markets initially priced in.
- Significant errors occurred regarding the magnitude of growth slowdowns in emerging economies and Europe.
- Hatzius admits the firm likely underestimated the transmission effects of Fed tightening on vulnerable emerging markets.
- Hatzius reflects on the Berlin Wall's fall (November 9, 1989) as a critical case study in the limitations of forecasting and the danger of solidified assumptions.
- In 1987, widespread consensus, including historical analysis by Sebastian Haffner, predicted the Wall would stand for another 50 to 100 years.
- The event highlights the necessity of challenging "conventional thinking" and static views of geopolitical enmity.
- Professional philosophy on economics and forecasting emphasizes the reconciliation of conflicting qualities.
- Effective forecasting requires balancing precise, "scientific" modeling with "artistic" judgment derived from soft information and historical experience.
- Forecasters must maintain the willingness to dissent from consensus, accepting the vulnerability that comes with being wrong outside the crowd.
- Hatzius notes that while methods improve, the discipline remains imperfect and often involves recognizing what one does not know.
- Hatzius admits predictive models have failed to gain traction in forecasting soccer outcomes.
- The 2018 World Cup results contradicted analytical models, with Germany's early elimination contrasting sharply with the 2014 victory.
- Soccer's low-scoring nature and extreme unpredictability render big data and AI approaches currently ineffective for this domain.
- Personal interests include wildlife conservation, specifically working with "Save the Elephants" in northern Kenya.
- Hatzius views conservation as critical because the loss of wild spaces and species is often irreversible.
- He finds the social organization of elephants scientifically interesting from a behavioral perspective.
- Hatzius concludes the interview by stating a fundamental rule of forecasting: success depends on explicitly acknowledging the limits of one's knowledge.
- He declines to make predictions on entertainment awards (Super Bowl, Emmys, Oscars) due to this principle.