Tuesday 21st June
Economics is the study of how money and business and wealth and poverty work in the World, and it is not an exact science. In fact it is very inexact indeed. They say that if you have two economists in a room one of them is bound to disagree with the other two. There are basically two parts to Economics; one is the analysis of where and why we are, and the other is to extrapolate from those conclusions what will happen next.
Just as almost all (except possibly one) opinion polls will not tally with the actual result of any vote; (they are just that, a statistical analysis of asking a sample of people how they will vote – which is not necessarily how they will actually vote) so Economic forecasts are almost always wrong. Confused? You will be when you talk to an Economist. Firstly, most Economic forecasts are made by entering masses of data into a computer programme which compares this data with what has happened in the past and comes out with what it thinks is an educated guess as to what will happen in the near or middle future given certain criteria, such as tax changes or interest rates.
Unfortunately, sophisticated as these computer models are they always assume that people (the ones actually spending money or working) will behave in a rational way. And they don’t.
No Economist saw the Financial Crash of 2008, which we are suffering from to this day, coming; or fearing some sort of crash, had any idea of the scale or ramifications of it. George Osborne has missed every single target he thought his policies would achieve, all based on perfectly sensible forecasts from the OBR. And no-one has any idea what would really happen if we left the EU, or indeed if we stay in (though there may be a degree more certainty in the latter.)
J K Galbraith, a very clever Economist of the Sixties, said that Economic Policy (and forecasting the results) was like pulling a brick on a piece of elastic along a table top when your only point of vision is at eye-level; you tug the brick and cannot see anything moving so you tug again, still no discernible movement, another tug and then the brick hits you in the eye.
Economics lesson over for the day, please bring your text books to the front of the class and place them one by one in the shredder.