POLITICAL and economic debate is often a matter of competing visions, which means it concerns competing forecasts. In the heat of the EU referendum debate, I was struck by a financial adviser who tweeted me that he “derides all forecasts.” Along with the attacks on the views of “experts”, it adds to a worrying change in the tone of the debate that echoes the Trump campaign’s disregard for facts.
It is a fair criticism that economic forecasts are often wrong; it is very hard to predict recessions in particular. The old joke is “How do we know economists have a sense of humour? They put a decimal point on their forecasts.” But forecasts are inescapable. When the Leave campaign says that Britain will flourish outside the confines of the EU, that’s a forecast. They may not put decimal points on their predictions. but that only makes it an imprecise forecast where it is harder to challenge the details.
Karl Popper famously made the observation that the usefulness of a prediction was related to its potential for falsification. “It will rain in London in the future” is a statement that is 100% accurate. But it is useless when it comes to telling us which day we should carry an umbrella. A statement that it will rain at 10.30 tomorrow is much more useful; it either will, or it will…Continue reading