Summary. In this article, adapted from the forthcoming book Shocks, Crises, and False Alarms, the authors explain how economic analysis works in the real world. They lay out three principles for navigating the rising number of economic risks: (1) Don't put too much stock in any one economic model. (2) Ignore the doomsayers in the financial press. (3) Cultivate rational optimism and an eclectic form of judgment that draws on multiple sources. That involves identifying the critical drivers of potential risk, building a narrative, and pressure-testing it from multiple perspectives. The "dismal science" of economics and our clickbait culture of public discourse are a perfect match to fuel simplistic narratives of doom. To avoid false alarms and achieve a true assessment of macroeconomic risks, the authors write, leaders should look past both to reclaim their own judgment.

Over the past five years corporate leaders and investors have had to digest a rapid succession of macroeconomic shocks, crises -- and false alarms. In 2020, when the pandemic delivered an intense recession, leaders were told it would be worse than 2008 and potentially as bad as the Great Depression. Instead a fast and strong recovery unfolded. In 2021, when supply bottlenecks and strong demand sent prices soaring, a common view was that runaway inflation would take us back to the ugly 1970s. Instead inflation fell from 9.1% to just above 3% in a year. In 2022, when U.S. interest rates climbed, a cascade of emerging-market defaults were predicted -- but they didn't materialize. Also in 2022, and again in 2023, public discourse cast an imminent recession as "inevitable." Instead a resilient U.S. economy not only defied the doomsayers but delivered strong growth.