Chris Dillow wrote a cautionary, if public, note to me last week on forecasting recession.
I think he slightly overstated his case: I do admit I could be wrong on this issue. We ended up being rather closer to agreement in a twitter exchange as a result than Chris' note suggests, but that's not my concern here.
First, I think the fear that Chris alludes to that I may be offering my critics a stick to beat me with if it transpires that I am wrong is too cautionary. They will always find a stick to beat me with: this makes no difference. All I am doing is adding an alternative into their array and I am unconcerned about that. The differences are much more fundamental than argument on any such point of detail.
Second, I disagree with Chris that it is not appropriate to forecast. Chris is wholly right to say that an economist cannot tell the future. I agree with that. But if society pays large numbers of people to be what I think should be public intellectuals (and I am now in that category, being paid one day a week by City University, and so by the state) then I think I have some duty to provide a return on the investment made by making public comment on what I think might happen in the economy and how we might prepare for it. That, I think, is part of the role although I know most do not do so.
And 'might' is the important word here. All management decision making is conditional, as a matter of fact. We cannot know what will happen and what the outcomes of actions will be, so we always operate in the real world in conditions of uncertainty. In other words, what Chris says about inability to forecast is necessarily correct. However, decision making has to take place despite that fact. Many (maybe most) economists pretend that this dichotomy either does not exist by assuming the existence of perfect knowledge, or seek to avoid it by saying nothing about what their work might predict may happen. I embrace the uncertainty and am willing to say what I think might happen, with what I think are best risk assessments attached ( the statement that I may be wrong, but don't at present think that likely being such a statement).
The question to ask is not then whether I am wrong or not (because by necessity I will be sometimes) but whether or not economists making suggestion that we prepare for possible outcomes that they think more likely than not is useful? I suggest such forward looking approaches are useful. That is sufficient for me to then justify the risk of writing as I do.
And I'm thick skinned enough to bear the consequences.
But I thank Chris for making me think about it.
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I notice that Chris Dillow is of the opinion that
“….forecasting a recession gives the many non-economists who read Richard a false impression that economists can foresee the future. In fact, we can’t. Knowledge of the future is a contradiction in terms.”
Which is a bit of a cop-out! An engineer should know that a bridge is unsafe and may collapse at any time. He will not know exactly when that will occur, so he can’t exactly foresee the future, but that’s not the point.
I’m not a professional economist but I knew the 2008 crash was on its way. I knew that the situation prior to that very similar to the Lawson credit boom I’d experienced in the late 80’s with a crash to follow in the 90’s. In the 00’s it was the same story on both sides of the Atlantic. When I walked into a bank and I was asked if I’d like to borrow money even though I hadn’t expressed any interest in a loan, and saw that silly prices were being asked and obtained for neighbouring houses, I knew monetary policy was far too slack and trouble was brewing. I knew the euro was going to have big problems when that was introduced. I just couldn’t see how Germany and the weaker EZ economies could possibly cope when they were all shacked to the same currency with no possibility of any adjustment to suit changing economic conditions.
So if an interested layperson can see problems looming in the economy why can’t the professionals? They are definitely looming again BTW ! Richard is quite right. IMO.
Peter; your comments are spot on in fact I believe you understate your point, for I and many people I spoke to (all of us you may discrbe as very ordinary folk) from perhaps 2004 onwards would often say “this boom cannot last” but at the time had no insight as to why. My usual comment at that time was that “any body with a bucket and trowel can call themselves a builder and earn a fortune”.
My comment being directed to an area of the economy which was visible to me at the time.
But at that time we were all assured by politicians and bankers alike that things were good.
Many people predicted the crash but I only know one who predicted the date. I knew Fred Harrison’s Boom, Bust: House Prices, Banking and the Depression of 2010, published in 2005, but even I couldn’t quite believe that house prices would continue to climb until the end of 2007 – but that’s what happened.
“And I’m thick skinned enough to bear the consequences.”
I hope so, Richard, because you are an interesting fellow. However, you do give the impression on occasion that you are actually very thin-skinned.
No: I just don’t suffer fools gladly
A very different trait
If such ‘forecasting’ is a necessary part of coming up with big ideas such as “It’s time to create a safe haven strategy for the world’s capital as well as its people”, it is a price well worth paying.
I agree that contributing ideas for contestation and debate is the responsibility of a publicly funded academic and an essential part of the process of democracy.
Just a few weeks before the 2008 crash, the US government and the banks were insisting that there was absolutely nothing to worry about.
Worth remembering.