Predicting an end to recession

Last week I spoke to a group of realtors, lawyers and accountants in Kansas City during a seminar organized by CBIZ to assess the economic outlook for 2009. To say that the mood was gloomy would be an understatement.

Most of my talk was about the role of mass collaboration could play in driving the success of small and medium size enterprises. While the focus in Washington has been on organizing bailouts for large enterprises to provide short-term damage control, I argued that it’s more sensible over the long-term to provide stiumlus for SMEs given the critical role they play in innovation and job creation.

What really seemed to intrigue the audience, however, was the few minutes I spent discussing the potential for using prediction markets to make smarter forecasts and decisions. I used intrade’s prediction market for the presidential election as an example. But what the audience wanted to know, more than anything else, was whether a prediction market could help them forecast the end of this economic nightmare.

Well, there is no such prediction market (at least not on intrade.com) but there are plenty of indicators to suggest that the intrade community sees little hope in the months ahead. At todays rates:

• Probability that the US economy will be in recession in 2009 — 90%.
• Probability that the DOW will close on or above 11,000 by December 31, 2008 — 0%.
• Probability that the unemployment will be greater than 5% in December, 2008 — 100%
• Probability that the US economy will go into depression in 2009 — 15%

All of these predictions seem rather obvious now (though one would have done quite well had they bet back in August 08 that the economy would be in recession in 2009) and I don’t see anyone willing to go out on a limb to predict when all of this might end. Given the current state of flux, such reticence is understandable. Maybe someone in the reader community would care to make a prediction? Perhaps you’d like to provide some solace to my friends in Kansas City .

While we’re at it, is there a role for mass collaboration in getting us out of this economic mess. What do you think about the merits of bailing out failing automotive giants versus a longer-term emphasis on stimulating the small and medium size business sector? Or given that large and small enterprises are so intertwined through supply chains, etc., should we be trying to protect both?