I was heartened this week to read the article in The Times by veteran (I hope he will forgive me for saying so) commentator David Smith in which he defended the role of economic forecasters (here). As he pointed out, forecasts may be wrong – indeed, they often are – but they need to be made. In my view, the trick is to know how to present the central case as one outcome amongst many possible paths, rather than focus solely on the one deemed to be the most likely.
This is a critical point. Indeed, part of the frustration which economists have is that their forecasts are often misrepresented. We know we don’t know precisely what the future holds and we are more than happy to say so – it’s just that quite often, that is not what people want to hear (I refer you to my post from July, here). Frequently, economic forecasts are treated with a reverence which they do not deserve. Indeed, this takes us to the heart of one of the subjects I have written about extensively on this blog: The criticisms levelled at some areas of macroeconomics and the degree of attention which we should pay to the work of economic practitioners. They are two different issues and we must be careful not to mix them up.
Whilst I admire the intellectual content of a lot of academic work, my criticism is that it too much of it is arcane and tries to dress up simple analysis in abstract mathematical terms. Practitioners tend to eschew the overly complicated – not because we don’t understand it (though sometimes that might be the case), but partly because we operate under greater time and resource constraints which mean that our analysis falls short of the standards which academics set for themselves. Most of us do have an understanding of the academic material but choose which parts we can use and which parts we can afford to ignore.
But the criticism of economics by outsiders is different. They argue that because we get things wrong, our forecasts are not to be trusted. And that is why (to quote Michal Gove) "we've all had enough of experts." I thus took great exception to an argument used by the FT journalist Wolfgang Munchau who suggested that "Because of a tendency to exaggerate, macroeconomists are no longer considered experts on the macroeconomy." Let's just stop and think about this. Exaggerate what exactly? The pre-Brexit exaggeration came from politicians (George Osborne in particular) who blew up work by the likes of the Treasury to imply it said something it did not. The analysis said that UK output would be anywhere between 4% and 7.5% below that which would otherwise result if we stayed in the EU, over a 15 year horizon. That is a significant welfare loss, but it probably means that the UK would grow at around the same rate as the euro zone rather than what we have experienced here in recent years.
The press is not immune from the tendency to exaggerate. Economists are routinely described as "experts" and forecasts treated with undue reverence – until they turn out to be wrong and are dismissed with Gove-like contempt. Indeed, this term "expert" appears to have a recent provenance and I don't remember being described as such until relatively recently. As a case in point, consider this quote from The Observer suggesting that "Ongoing uncertainty over the manner of the UK’s departure from the EU is likely to weigh down the property market in 2017, say experts, who predict little or no growth in prices amid a slowdown in sales." (here). It is more accurate to say that those who work in the property industry have given an educated guess, based on their experience and knowledge, of what they expect to happen. It’s not as sexy as being an expert but it’s closer to the truth.
Whilst I have done my fair share of forecasting over the years – some of which was accurate, a lot of which was not – we have to recognise that economics is not a predictive discipline. Economists have no better idea than the next person what will happen next week or next year. But what we can do is put issues into context, based on past experience, and we try to offer an evidence-based view of what might happen in future. That does not guarantee we will be right. But as director of the NIESR, Jagjit Chadha, has pointed out “It is quite obvious that we cannot know the future. But it is equally obvious that we cannot afford not to think and plan for the future.” In other words, fail to prepare and prepare to fail.
