The OBR has published a long report on why it got its GDP forecasts wrong. This is an exercise in missing the point.
We don't need a 99 page document to tell us why the forecasts went wrong. They went wrong because that's what forecasts do. The future is inherently unknowable, so forecasts will very often be wrong.
Getting a forecast wrong is no crime. What is deplorable is basing a policy upon something as unreliable as a forecast. Blaming economic forecasters often serves a political function. It deflects blame for bad policy away from those in power - be they politicians or bosses - and onto economists.
The question we should be asking is: can we base macroeconomic policy upon something more robust than a forecast?
In monetary policy, the answer could be yes: one purpose of the Taylor principle is to take forecasting out of policy. Granted, a forecast is implicit - inflation and the output gap matter because they are thought to predict future inflation - but the principle doesn't waste time on formal forecasting.
The analogue in fiscal policy is the automatic stabilizer; as GDP falls, so taxes fall and welfare spending rises, helping to moderate the recession. Such stabilizers, however, aren't sufficient to fully describe how fiscal policy should be set. Hence the debate between Keynesians (or Kaleckians!) and Austerians. Insofar as this debate rests upon very fallible economic forecasts, it is, however, unsatisfactory.
Hence my question: could fiscal policy become more automatic, more state-dependent - as the Taylor principle envisages monetary policy - and less forecast-dependent?
In one sense no. There are awkward administrative issues in having state-dependent increases or decreases in infrastructure spending. The rule "build a new airport iff the output gap exceeds x%" is probably impractical. There are, though, three other possibilities:
1.Have a bigger government sector. As Dani Rodrik pointed out years ago, open economies tend to have bigger governments. This is because such economies are more vulnerable to unforeseeable risk, and having a bigger state sector is a way of offsetting those risks.
2. Have stronger automatic stabilizers - for example, higher marginal tax rates or higher benefit levels.
3. Have a system of job guarantees, in which the state (or local government) acts as an employer of last resort.
Now, my rightist readers will point out that there are drawbacks to all three of these solutions. They are right - though how much so I'm not sure. This is because there's a fundamental trade-off; policies that reduce risk tend also to blunt incentives.
Without such policies, however, there will be pressures on governments to use discretionary policy. But if this relies upon a sill "predict and control" mentality, it too has large costs.
Another thing: There is, if you'll allow the phrase, a third way here. Having active markets in GDP securities and other macro risks would allow those exposed to recession risk to buy insurance against it.This would reduce the need for governments to try (unsuccessfully) to prevent such events. However, I fear that Robert Shiller and I are the only two guys on the planet who think this might be a good idea.