Economists totally failed to call the crisis of 2008 and their predictions for what would happen in the event of Brexit and Trump victory were about as far off as you can imagine. Is that a reason to ignore, to condemn the views of experts to the dustbin? A beautiful explanation has emerged to explain why we need to listen to experts, after-all.
When Andrew Haldane, chief economist at the Bank of England, likened the economic forecasts of what would happen in a post Brexit world to a Michael Fish moment, many nodded their assent.
Michael Fish was the weather man who dismissed the danger of a hurricane in 1987. Strictly speaking, he was right. Technically, the UK did not suffer a hurricane, but the point is, Mr Fish failed to warn us of the biggest weather calamity to hit the UK in a very long time.
After the Queen asked economists, after the crisis of 2008, why no one saw it coming, her words came to symbolise a public sense of dissatisfaction with experts, which Michael Gove pandered to do when he said “we have had quite enough of experts.”
Jonathan Portes is one of them – an expert, and, worse, he is an economist. And for many, he is something of a hero. A former director of the National Institute of Economics and Social Research, and now a high ranking professor at the London School of Economics, he has come up with a beautiful metaphor to explain the problem.
To understand his point, return to the profession that Michael Fish was a member of, before retiring.
Weather forecasters are the butt of many jokes.
The same applies to economic forecasters.
JK Galbraith once said that the “only benefit of economic forecasting is to make astrology look respectable.”
But if we contrast predicting the weather with climate science things look different.
We all know that a host of variables can influence the weather. If a forecaster gets one variable wrong by a small amount, then this can cause the final conclusion of the weather model to be totally inaccurate.
This is no secret, the public intuitively understands this.
Likewise, small errors in an economic model can totally nullify final forecasts. And because economic forecasts are making assumptions about human behaviour, which is notoriously difficult to second guess, these models often are inaccurate.
But just because the weather forecast is often wrong, does that mean we should reject the idea of climate change? Most people can see why that logic is faulty. We may or may not get short-term predictions right, but we can get a feel for the underlying drivers.
We have no idea what the temperature will be in three weeks’ time, but we can be pretty sure, that all else being equal, as carbon dioxide levels in the atmosphere rise, average temperatures will go up, over time.
We know that protectionism is bad for the economy over time, we know that immigration promotes wealth, and we know that regulation is there is to protect consumers and to try and avoid systemic crises.
A reversal of such policies may not lead to immediate disaster, and indeed can be successful, that is why they are so popular, but that does not mean that in the long run, the predictions of economists will be proven wrong.