Roberts: The failure of forecasting

All the talk among mainstream economics is that faster economic growth is just around the corner. All the august analysts at those grotesque investment banks like Goldman Sachs or Deutsche Bank expect global growth will move up to around 4% next year from a feeble 3% this year. And the chief economist of the IMF, Olivier Blanchard, always quick to try to keep up with the economic Joneses?, has announced that he intends to raise his forecasts for US real GDP growth for next year.

Well, I?ll look at prospects for 2014 in my next post after the Christian seasonal break. But while those of you who do, are eating their turkey or whatever, remember that economic forecasting is way less accurate than weather forecasting. And in the case of the period since the Great Recession, mainstream economic forecasts have been consistently too optimistic. In fact, since 2010, global GDP growth has declined every year and 2013 will continue this trend: 2010: 5.2%; 2011: 3.9%; 2012: 3.2% and 2013: 2.9%. For the advanced capitalist economies, growth has been even poorer: 2010: 3%; 2011: 1.7%; 2012: 1.5% and 2013: 1.2%.

But no more on this for now. Let?s just ponder the wonderfully accurate forecasts made in the past by the great and good in the economics world in the years and months before the Great Recession hit the world capitalist economy like the huge storm that smashed up the UK yesterday and today.

?The world economy [is] more stable than for a generation? Our hugely sophisticated financial markets match funds with ideas better than ever before.? Soon-to-be UK prime minister David Cameron at the London School of Economics, September 2007.

?It is quite possible that at some point we may get an odd quarter or two of negative growth, but recession is not the central projection at all.? Then governor of the Bank of England, Lord Mervyn King, again in 2007.

?Why did no one see it coming?? Elizabeth II, British Queen, during a visit to the London School of Economics, October 2008.

?Anyone who says we?re in a recession, or heading into one?especially the worst one since the Great Depression?is making up his own private definition of ?recession.? Donald Luskin US investment guru, 14 September 2008, the day before Lehman Brothers filed for bankruptcy, triggering a stock-market crash.

?Last year this was a financial crisis that we thought with a bit of luck would be over by Christmas.? Charles Bean, British economist and deputy governor of the Bank of England, 26 August 2008.

?We can have confidence in the long-term foundation of our economy ? I think the system basically is sound. I truly do.? George W. Bush, US former president, 15 July 2008

?I think this is a case where Freddie Mac and Fannie Mae are fundamentally sound. They?re not in danger of going under? I think they are in good shape going forward.? Barney Frank, US Congressional committee chief, 14 July 2008 ? two months later the mortgage agencies, Fannie Mae and Freddie Mac were nationalised and bailed out, permanently costing the US taxpayer billions.

?The fundamentals of America?s economy are strong.? John McCain, US senator and presidential candidate, April 2008.

?The recession debate is over. It?s not gonna happen? The Bush boom is alive and well. It?s finishing up its sixth splendid year with many more years to come.? Lawrence Kudlow, US economist and right-wing commentator, December 2007.

?Over the ten years that I have had the privilege of addressing you as Chancellor, I have been able year by year to record how the City of London has risen by your efforts, ingenuity and creativity to become a new world leader ? So I congratulate you, Lord Mayor and the City of London, on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London.? Gordon Brown, British former prime minister, 20 June 2007.

?The central problem of depression-prevention has been solved, for all practical purposes.? Robert Lucas, Jr, top US neoclassical economist addressing the American Economic Association in 2003.

Michael Roberts
Courtesy of:
 The Next Recession

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