The fiction of forecasting

I realise that this article was written by an accountant (Richard Creepicture of Richard Cree is editor-in-chief of economia, which is the magazine for Chartered Accountants) and can therefore be rubbished by all practising economists, but I do like his suggestion that economic forecasts are about as useful as a 5-year weather forecast.

Here are some highlights

About Mark Carney:

A week ago, on what some in the media insisted on labelling “Super Thursday”, (because how can a day feel important without a hashtag-friendly label?) the Bank of England governor, Mark Carney, released a huge quantity of economic data. From the slew of numbers and insights he offered up, one headline jumped out. Contrary to his advice the last time he gave such “forward guidance”, way back in July when the economics clearly looked completely different and when he announced interest rates were on the verge of being hiked up, rates would now not be going up until 2017.

 

This week, as better than expected numbers on unemployment suggest the economy may be on the verge of over-heating, it now seems plausible that Carney’s next forward guidance may move that 2017 date forward again.

About George Osborne:

Meanwhile, across town in Westminster the chancellor, George Osborne, is planning his next mini-Budget (how long ago it seems since he pledged to scrap these in favour of a return to an annual Budget). At the heart of his Autumn Statement will be a set of economic forecasts from the Office for Budget Responsibility (OBR). Or rather, a set of revised forecasts. And they will be wrong, or more accurately they will only be a best guess of what might happen. Apologies to the doubtless very clever economists at the OBR if they’ve landed a couple, but most OBR forecasts have had to be revised. In fact, the recent record of most of those who make a living from reading the economic runes hasn’t been great. Only a handful of economists predicted the economic crash (and many of those are from the Cassandra school of economics, rather like the former business secretary Vince Cable, who was once accused of predicting “nine out of the last three recessions”). Today you can find an economist prepared to collect together a bunch of financial and economic indicators that point to either the start of the next recession, the beginning of a golden recovery or anything in between. Can someone please just admit we haven’t really got a clue, that the models, if they were ever fit for purpose are broken?

If you want to read the whole article go to The fiction of forecasting