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October 13, 2011


Luis Enrique

up to a point, surely Chris? If we thought European economies were about to boom, or continue to flounder, that makes a difference to important things like how we regard the state of public finances and bank balance sheets, which is a forward-looking matter. Another way of putting the same point is to say that expectations matter, in all manner of ways, and expectations are a forecast. The fact expectations are frequently wrong does not negate their importance. Haven't you yourself said that the right way to think about forecasts is as a probability distribution - we cannot avoid having subjective probability distributions. You don't think UK GDP is going to halve or double next year, for example.


Economics is a science based on observed human behaviour like philosophy, what is unique about economics and philosophy is that they have the potential through their insights to change that which they observe (non-linear feedback). Knowledge of how people behave under particular economic conditions can be advantageous to those who possess such knowledge, so when that knowledge becomes widely known the behaviour of people is likely to change in order to take advantage of that knowledge making the insights on which that knowledge is based no longer valid.

That is why economic forecasting can never be an exact and useful science.


I think we assess debt sustainability on the basis of trend long-run growth, not next year's - and we can more sure of that.
Yes, I do think in terms of probability distributions - but these are very different from the "recession next year" type forecasts.


Are you then saying that forecasts should be a little more nuanced in terms of detailing probability distributions rather than being simplifications of same?

Is there any evidence that for example the BOE's "fan graph" forecasts are any more accurate or useful than a single figure summary? (the "central" case).

Aren't decisions often more or less binary, and a forecast merely a way of summarising an analysis of perceived probability distributions into a recommendation for action?


You seem to be objecting to the simplification inherent in analysis, and therefore analysis itself.

Even operating on the basis of a non-forecasting rule relies on an implicit forecast that conditions will maintain such that the rule is useful.

gastro george

Interesting, because Osborne's economic policy is based on the "fact" that the people can forecast the "fact" that his economic policies will lead to lower taxes in the future so can confidently go out and spend more money.


Seems very hard to convince people, many economists included, that the task of economists is not to predict the future. As soon as one of them tells you what will happen, better stop reading.

Orin T.

Are you saying that Macroeconomics is like creationism; i.e. that it explains everything and predicts nothing?

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