BREXIT DOOMSAYERS DOUBLE DOWN ON WRONG
PREDICTION by Roger
McKinney 1/27/17
It seems that the Bank of England has
been feeling the heat from its forecast that Brexit would plunge the UK into a
depression. Added to the failure of mainstream economists to predict the Great
Recession, the public is losing confidence in its gurus, according to a story in the Guardian,
Haldane
described the collapse of Lehman Brothers as the economics profession’s
“Michael Fish moment” (a reference to when the BBC weather forecaster predicted
in 1987 that the UK would avoid a hurricane that went on to devastate large
parts of southern England).
Speaking at
the Institute for Government in central London, Haldane [Bank of England Chief
Economist] said meteorological forecasting had improved markedly following that
embarrassing mistake and that the economics profession could follow in its
footsteps.
The bank has
come under intense criticism for predicting a dramatic slowdown in the UK’s
fortunes in the event of a vote for Brexit only for the economy to bounce back
strongly and remain one of the best performing in the developed world.
Before the referendum on divorcing the
EU, Bank of England governor Mark Carney had warned that that the split would
cause a recession in the second half of 2016. Instead, the UK economy grew at
an annual rate of 2.4% in the third quarter with no signs of a slowdown in the
fourth.
Haldane defended the missed forecast by
saying that consumers and the housing market were more resilient than expected.
He stuck to his gloomy prediction by saying recession will ravage the UK in
2017.
He said of economics: “It’s a fair cop to say the profession is to
some degree in crisis.” His intention was to highlight the problems inherent in
placing too much reliance on large models of the economy which assume people
always behave rationally.
Mr Haldane
said he hoped the lessons learnt after the financial crisis would help
economics move away from “narrow and fragile” models to a broader analysis
which encompasses insights from other disciplines.
Former UK justice secretary Michael Gove
said: Sometimes we’re invited to take
experts as though they were prophets, as though their words were carved in
tablets of stone and that we had to simply meekly bow down before them and
accept their verdict.
I think the
right response in a democracy, to assertions made by experts, is to say ‘show
us the evidence, show us the facts’. And then, if experts or indeed anyone in
the debate can make a strong case, draw on evidence and let us think again –
then of course they deserve respect. Of
course, followers of Austrian economics have been doing that for decades but he
has ignored them.
Haldane blamed the profession’s reliance
on models that were built for an age when consumers and businesses, and
especially banks, “behaved rationally,” adding,
Since 2008,
consumers have maintained their spending when the classic economic models would
have expected them to be more circumspect. The article continued:
He blamed
decades of education policies – that had left numeracy levels in England only
just above Albania – for holding back improvements in productivity. He said the
lack of numeracy skills was stark in comparison with other countries, which
placed more emphasis on workers having more than a basic level of maths.
It’s good that some economists at the
Bank of England can admit failure. That is the first step toward recovery from
addiction. But blaming the public for being irrational and bad at “maths” shows
they have a long way to go.
Austrian economists should never burn at
the stake others for missing forecasts because they have known all along such
precision is impossible. Hayek lectured in his Nobel Prize
speech:
The
correlation between aggregate demand and total employment, for instance, may
only be approximate, but as it is the only one on which we have quantitative
data, it is accepted as the only causal connection that counts. On this
standard there may thus well exist better “scientific” evidence for a false
theory, which will be accepted because it is more “scientific”, than for a
valid explanation, which is rejected because there is no sufficient
quantitative evidence for it.
I confess
that I prefer true but imperfect knowledge, even if it leaves much undetermined
and unpredictable, to a pretense of exact knowledge that is likely to be false.
The credit which the apparent conformity with recognized scientific standards
can gain for seemingly simple but false theories may, as the present instance
shows, have grave consequences.
In fact, in
the case discussed, the very measures which the dominant “macro-economic”
theory has recommended as a remedy for unemployment, namely the increase of
aggregate demand, have become a cause of a very extensive misallocation of
resources which is likely to make later large-scale unemployment inevitable.
Compared to economics, physics is child’s
play. The subject of economics, humanity, is far more rich and complex than any
of the objects of study of physics, whether black holes or subatomic particles.
Since Walras, mainstream economists have done little more than starve the
voluptuous field and force it to fit into the math bikini. That’s why they get
so much wrong. They are left with very little material to work with.
History of finance is similar. I
summarize it in by book, Financial Bull Riding. As a
result, financial academics have determined that everything is random, so all
an investor can do is buy the market and hold on. But investing is so much
richer than that, as many have proven, especially Warren Buffet.
Yes, mainstream economics is broken, as
Haldane said. It has been broken since Keynes. It takes many failures like
those Haldane pointed to in order to convince a few, but most refuse to repent.
It usually takes a new generation that is open to the truth to make a major
change in a field like economics. Maybe the next generation will be it.
The bottom line for investors is don’t
trust their forecasts.
Originally published on ABCT Investing. -
Roger McKinney
http://affluentinvestor.com/2017/01/brexit-doomsayers-double-wrong-prediction/
Comments
The UK
needs to look at filling its own market demand with goods and services made in
the UK. In 2016, the UK had a GDP of
$2.8 trillion. http://statisticstimes.com/economy/countries-by-projected-gdp.php
In 2014,
the UK exported $472 billion and imported $663 billion. They have a trade
deficit of $191 billion. If they increase their production and productivity,
they can get better numbers. They import cars and gasoline. They need to
increase sales of UK produced cars and increase their oil and gas production
and refinery capacity.
The UK
has an army of unnecessary “civil servants” who don’t add much to their
production or productivity. Most of
these folks are involved in unnecessary work aimed at terrorizing the citizenry
at the urging of UN proclamations. They need to get over their Stockholm
Syndrome and cut their government spending.
The UK
has succumbed to UN delusional scams for far too long. UK fishermen need to get their ocean back. UK
citizens need to get their Magna Carta rights and sovereignty back. The UK
needs to outlaw Shairia, end Muslim “no go zones” and get their public schools
back from the Muslims..
Norb
Leahy, Dunwoody GA Tea Party Leader
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