Forecasting and the unknowns

Today I am publishing another piece with no reference to the UK or the election. I will resume normal posts tomorrow when national campaigning starts again.

Events, dear boy, events. Policy makers, governments and companies need to forecast the future as they shape their policies and decide what to do to serve their citizens or customers better. In recent years the main international forecasters like the IMF and World Bank, the ECB and the US authorities, have struggled to anticipate the banking crash of 2008-9 or the Euro crisis that followed. Many companies have expressed surprise at the turn of events from Tokyo to New York, and were not anticipating the election of Mr Trump.

As someone who tries to set out a view of what might happen next by way of important background to policy debate, it is important to think through how you can improve your chances of understanding the trends and the risks. You begin as most do by forecasting the “knowns”. You can people your forecast with factual dates for future elections, Central bank rate setting meetings, publication of important results, dates of Budgets and the like.

You can then move from this easy bit, to trying to forecast the unknown element within these events. I know the Fed will consider interest rates at its June meeting. I do not know what it will decide to do, though with many others I expect it to raise rates by another 0.25% based on what I have read from the various statements and analyses put out by the Fed and its members. Sometimes your chances of success are high because the organisation has given a steer or clear briefings in advance. Sometimes the data they will consider is available and again it may be obvious what they have to decide. I did not know Mr Trump’s budget, but a lot of what he is proposing was in his programme for government put out by candidate Trump, so it was not that difficult to guess. I did not know Mrs Merkel would decide to cancel all her nuclear power, but could see that might happen by watching the pressure she was under from the anti nuclear lobby.

There are then the unknown unknowns, as Mr Rumsfeld once famously said. No one could know that a Japanese nuclear power station would be badly damaged by a tidal wave, leading to a major change of energy policy. All you can do is adjust your view promptly if such a thing happens.

The reason some of the world institutions are so bad at forecasting economies is they have a vested interest in stability and come to believe their own reassurances. They missed the build up of excessive credit because they persuaded themselves that the world could suddenly handle levels of debt and gearing through derivatives that would have been dangerous before. Worse still, they then brought the whole structure down by lurching to too tough a stance, presumably because they did really believe all these positions were risk reducing! An outsider could see more clearly. Many of us saw the build of debt and gearing in the EU and US was excessive and said so. A few of us saw the change of stance by the authorities was disastrous. If there is too much debt around the last thing you want to do is so tighten money that people cant afford to service their loans.

Published and promoted by Fraser Mc Farland on behalf of John Redwood, both at 30 Rose Street Wokingham RG 40 1XU

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68 Comments

  1. Mark B
    Posted May 25, 2017 at 5:18 am | Permalink

    Good morning

    So it’s all pretty much guesswork. Thought so. And the fait of nations, business and people depend upon such guesswork.

    When sanity returns someone please let me know.

    • Hope
      Posted May 25, 2017 at 8:25 am | Permalink

      JR,ball well and good but what has your govt done in office? We had Carney’s false predictions led by Osborne who failed every target and prediction. Some made to deliberately scare us. Any action against Osborne, Carney’s or Cameron? What standards for people in high office.

      The govt and public services care more about scaring us not to say anything or speak out about the atrocity in Manchester than actually doing anything! Rotherham sex abuse concerned over a thousand young white girls, children, that the govt and state failed to protect! The most vulnerable in society. Why, for political correctness to prevent alleged hate crime! The govt needs to get its priorities right. Start doing something, public safety over religion or ethnicity correctness.

      Etc ed

    • Hope
      Posted May 26, 2017 at 3:01 pm | Permalink

      JR, your party seems to enjoy own goals. Why not have a centre right Tory party than the left wing liberal agenda. The polls suggest people are catching on to May’s poor record, her incompetence and her lies in the EU referendum. She does not even accept or acknowledge how bad she performed as HS, yet wants more of the same! What a disasterous manifesto. Were any of you allowed a view? Was it written by her left wing SPADS? She will be remembered as the leader if the awful party.

      I thought Cameron threw away the election in 2010 ,but May seems to be streets ahead of him. Cameron won on 2015 because we English rejected Sturgeon!

  2. Jerry
    Posted May 25, 2017 at 5:27 am | Permalink

    Well if the “IMF and World Bank, the ECB and the US authorities” etc. do not effect the UK then why have you cited what they have and have not done in the past in highly political articles…

    • libertarian
      Posted May 25, 2017 at 9:54 am | Permalink

      Dear Jerry

      Get a grip ! I cannot see anywhere in this post where JR says these institutions do not affect the UK. All he said was they called it wrong in the past. If you can’t work out ( based on a huge amount of historic evidence) that they and others consistently call it wrong then you are just not paying attention. The fact that they call it wrong a lot of the time still has a massive effect on the UK economy

      You seem to want to attack JR at the moment based on not much at all. I think you should observe the election campaign moratorium and stop political campaigning Jerry

      • Jerry
        Posted May 25, 2017 at 7:06 pm | Permalink

        @libertarian; I’m not arguing about the article, I’m arguing that our host is electioneering when he says he is not. As it is I actually do not mind that politician carried on, it is saying one thing but doing another that I think unwise as many will ask how can they trust someone (or his party) when they say one thing yet do another.

        I bet had Mr Corbyn or any of the Labour shadow cabinet had done similar many who have taken exception at me would have been saying much as I have – and quite rightly.

        • Edward2
          Posted May 26, 2017 at 8:34 am | Permalink

          What topic would you allow Jerry ?

          • Jerry
            Posted May 26, 2017 at 12:58 pm | Permalink

            @Edward2; You have missed the point once again. 🙁

          • Edward2
            Posted May 26, 2017 at 3:27 pm | Permalink

            Usual evasion Jerry
            Simple question

    • John Probert
      Posted May 25, 2017 at 1:33 pm | Permalink

      Dear Jerry
      Mr Redwood is doing a good job,
      Try and say something intelligent.

  3. Duyfken
    Posted May 25, 2017 at 5:30 am | Permalink

    Your headline has too many words. It’s a little like saying one will “rise up” or be “going to go”. Forecasting anything other than the future would be rather pointless. Just teasing.

  4. Lifelogic
    Posted May 25, 2017 at 5:44 am | Permalink

    Some disasters were, very predictable indeed and were predicted by sensible economists, Majors ERM insanity and the EURO spring to mind. It is also very clear the damage that is done to economies by high taxes, virtual state monopolies in health, education and the likes, too much red tape, expensive religious energy, prices and income controls …..

    Other things such as the climate in 100 years times are impossible to predicts with any certainty at all. This as not even all the inputs such as the Suns activity, volcanic activity, future energy systems, populations, future genetic plant evolution …….can even be known. Even if we did it would still be immpossible to predict how the complex, chaotic system with many complex feedbacks will react. All sound physicist, engineers and scientists who are not after government grant funding for greencrap research will tell you that.

    • Lifelogic
      Posted May 25, 2017 at 6:26 am | Permalink

      Rod Liddle in the spectator today “the worse Tory election campaign ever”. Why on earth are the Tories so breathtakingly incompetent? Fox hunting, dementia taxes, more expensive green crap, attacks on the many state pensioners and soon will be pensioners, winter fuel allowances cut, more religious schools, pension pot sizes hit, new probate taxes, attacks on the self employed, mugging of landlords and thus tenants, absurd stamp duty rates, prices and incomes policies, yet more absurd employment laws, the absurd Mathew Taylor’s agenda, the high tax joke that is Hammond …..

      True the magic money tree, bank holiday, Father Christmas approach of Corbyn is even more pathetic, but one hardly wants to be promising endless pain and suffering to the people in an election period. Where is the uplifting vision? Especially as taxes and red tape are way too high already. Forget “strong and stable suffocating government incompetence” we want hope and vision, real growth, far lower taxes, efficient and cost effective government, freedom and choice (as to how we spend our earnings).

      Not Theresa Miliband’s dire socialist state monopolies, expensive energy, no jobs, price and income controls. Policies that do not work and can never work.

      https://www.spectator.co.uk/2017/05/this-is-the-worst-tory-election-campaign-ever/

      • Lifelogic
        Posted May 25, 2017 at 7:49 am | Permalink

        In essence T May is foolishly following Ed Miliband’s failed tomb stone agenda. Why do this, when there could be such an uplifting, lower taxes, high growth and greater freedom, real conservative vision that could be promoted?

        https://blogs.spectator.co.uk/2017/05/spectator-podcast-may-manifesto/

        • Tom William
          Posted May 25, 2017 at 11:26 am | Permalink

          Remember who proudly coined the phrase “the nasty party”.

    • fedupsoutherner
      Posted May 25, 2017 at 8:21 am | Permalink

      @Lifelogic

      Haven’t you heard? A degree in geography or history enables you to predict the climate. Keep up with play LL

  5. Peter VAN LEEUWEN
    Posted May 25, 2017 at 5:45 am | Permalink

    The 2012 “future of the eurozone” mentions “break” and breaking up over 25 times and betrays wishful thinking. The continent still hasn’t collapsed. 🙂

    • Know-dice
      Posted May 25, 2017 at 7:31 am | Permalink

      Do we [the UK] want it to collapse? – No 🙂

      What’s going to happen with Greece in June/July – Same old fudge?

      • Peter VAN LEEUWEN
        Posted May 25, 2017 at 7:21 pm | Permalink

        @Know-dice: Whatever may happen to Greece, its departure from the euro or the EU is more unlikely than ever.

    • Hope
      Posted May 25, 2017 at 8:27 am | Permalink

      Let us hope it does so there is no furth destitution, unemployment, loss of homes and business. Enough is enough. It s a failed project causing human misery. It only benefits a few elites and Germany prosperity.

    • Leslie Singleton
      Posted May 25, 2017 at 8:56 am | Permalink

      Dearest Peter–Sounds a bit as if you fear it will though and one reads that your Right Wing chappie may well get another bite of the cherry–Just takes one of these to go wrong (or Right or even right) and your roof will fall in. Sooner the better.

      • Peter VAN LEEUWEN
        Posted May 25, 2017 at 7:07 pm | Permalink

        @Leslie Singleton – you obviously hear sounds which aren’t there. I cannot help you though.

    • libertarian
      Posted May 25, 2017 at 9:55 am | Permalink

      Peter v L

      Not sure what you think constitutes collapse, maybe try asking the Greeks for a definition?

      • Peter VAN LEEUWEN
        Posted May 25, 2017 at 7:04 pm | Permalink

        Indeed those Greeks again! 🙂 No collapse visible there, they constitute arguably still a more democratic country than the UK. In spite of economic hardship this democracy still doesn’t want to leave the EU nor the euro, and it has not descended into the pre-EU Military Junta it once was.

        • APL
          Posted June 2, 2017 at 8:56 am | Permalink

          PvL: “arguably still a more democratic country than the UK.”

          Yea arguably!

          Greece, the country that elected Tspiris leader of ( what the unbiased BBC called ‘radical left wing ) Syriza to implement left wing policies.

          The same party when in power is then strong armed by the EU and ECB. Some democracy!

    • Mark B
      Posted May 25, 2017 at 12:08 pm | Permalink

      The EU dream has become a nightmare from which we are leaving. When others see that there is a bright happy future outside the Stupid Club others will start to think about leaving too. My money is on Denmark.

    • Richard1
      Posted May 25, 2017 at 1:13 pm | Permalink

      We all hope Europe will not “collapse” it would be a disaster for everyone.

      Did the Dutch press report on the extraordinary meeting of Mr Draghi, ECB President, with Dutch MPs? Apparently the normally placid Mr Draghi got furious when asked (i) what would happen if a eurozone country needed to restructure its debts and (ii) if a eurozone country wanted to exit the euro. Extraordinary that such an obvious subject for discussion is forbidden – the eurozone authorities must be very nervous. How can Dutch MPs do a thorough job of scrutinising policy which could result in substantial liability for Dutch taxpayers if such fundamental issues are off limits with the central bank?

      • Peter VAN LEEUWEN
        Posted May 26, 2017 at 9:10 pm | Permalink

        @Richard1: I have watched this 2 hour session afterwards via youtube. The exchanges are in English so all you need to do is type “Draghi Dutch parliament” to witness it for yourself. Financial spokespersons of some 12 political parties exchanged views with Mario Draghi in Q&A sessions. No fury to be seen, even though the exchange was quite spirited a few times. The best exchange was with Christian Democrat Omtzigt who also asked about this restructuring. Mario Draghi did not want to go into speculation about “things that have no probability of happening, period!” It is interesting to watch this exchange and the support that the socialist representative Leijten give to Omtzigt. Mario Draghi may not be used to the very direct (rude?) manner in which the Dutch debate, but IMHO he nicely held his ground.

        • Richard1
          Posted May 28, 2017 at 9:38 pm | Permalink

          Thank you I will watch an excerpt at least. For Mr Draghi to say a restructuring of certain Eurozone debt has no probability of happening is depressing indeed, as that is the only possible salvation eg for the Greek economy. Probably for Italy as well.

  6. alan jutson
    Posted May 25, 2017 at 5:55 am | Permalink

    Always amused by the thought of those trying to forecast the unknown, unknowns.

    No doubt someone somewhere is trying to develop a computer programme that can forecast the unknowns, and will then try to convince a government to spend Millions on it, so it can be ahead of the game in its own budget forecasts. !

    However as I have said before, Human nature has a strange way of making a nonsense out of many so called sensible programmes, Politicians who ignore this very important factor will do so at their peril.
    Some policy idea’s of late by all Parties, have proven that fact once again.

    Some policies of late

  7. Anonymous
    Posted May 25, 2017 at 5:56 am | Permalink

    Moving on quickly.

    Apart from the British Bobby now armed and looking like Robo Cop and troops surrounding Parliament, Gramps would have considered he called it wrong on the direction of things. *sarcasm*

    What a bloody mess. (Numbers left out ed)More from the-cult-which-must-not-be-named queueing to join the EU ferry service.

    I speak in common with tens of millions and you know it.

    Please stop ignoring me.

    Reply I am not ignoring you. I do not accept postings which make false allegations against many people. Of course we wish to protect ourselves from violent terrorists.

    • Anonymous
      Posted May 25, 2017 at 6:28 am | Permalink

      They are targetting our children: first sexually and now with bombs.

      How does surrounding Parliament with troops protect our children ?

      Telling us to stand firm whilst hiding behind troops is a bigger cock up than dementia tax.

      • Tom William
        Posted May 25, 2017 at 11:33 am | Permalink

        Could someone explain how troops with rifles (and helmets) are going to stop a suicide bomber? By all means use troops at security checks, basically being policemen, but marching around in platoons is fairly obviously just to reassure the public.

        Rather like Tony Blair sending armoured cars to Heathrow as a deterrent against terrorists with ground to air missiles who are hardly likely to launch them from Terminal 4.

      • Mark B
        Posted May 25, 2017 at 12:13 pm | Permalink

        It does not, as we are expendable.

        They have admitted that they cannot protect us from that which they have created so, have decided to man the barricades, pull up the drawbridge and leave the surf to themselves. Only, if you say something that they do not like you will be arrested, probably imprisoned and, in the case of one poor chap, murdered. But lets not talk about it, because it is embarrassing to those who have sat on their behinds and done nothing except make pretty speeches from their bulletproof bubble.

    • Mitchel
      Posted May 25, 2017 at 9:32 am | Permalink

      Napoleon,surveying his predicament in June 1815 (and alluding to the end days of the Byzantine Empire),told his argumentative followers:-

      “Let us not follow the example of the Late Empire,which pressed from all sides by the barbarians,made itself a laughing stock for posterity by being occupied with abstract discussions while the city gates were being rammed”

      We are not quite there yet but it would be helpful if the city actually had some gates to be rammed.

      • Longinus
        Posted May 25, 2017 at 12:34 pm | Permalink

        The traitors are already inside so closing the gates may not help much

    • DaveM
      Posted May 25, 2017 at 10:11 am | Permalink

      To Reply:

      The rod of terrorism has been made by successive governments ignoring concerns over woefully protected borders, lack of funding for security services, etc ad infinitum. There are millions of people in this country and elsewhere who simply wish to live their lives the way they want to live them. The rod can only be broken by the hundreds of thousands of people in uniform (who work for the govt!) who are prepared to face risks in order that the aforementioned millions can go on making the world work. The security services aren’t greedy – all they ask is for sufficient funding and for legal freedom to go about their business.

      Surely now SOMEONE in government will have the minerals to support the people who support the govt and want to protect the population. Surely the right to self-protection is more of a priority than the Yooman Rights of those who wish to rape and murder children?

  8. Roy Grainger
    Posted May 25, 2017 at 6:38 am | Permalink

    I notice organisations involved in forecasting who have a woeful record of accuracy (eg. Met Office) are now using a new formulation to absolve themselves from criticism: instead of saying “It will rain tomorrow” they say “There is a 70% chance it will rain tomorrow” then when it doesn’t rain they say “Well, we said there was a 30% chance of that so we were still right”.

    There is a difference between forecasts and guesses. Working out what will be in Trump’s budget from what he said while campaigning is a guess really, albeit an informed guess.

    There are two general types of forecasts: ones where you have some sort of theoretical model of how things work, and one where you don’t.

    In the former category are many broadly scientific phenomena where we have models of the underlying laws and relationships. For example they forecast how much fuel to put into a plane based on knowledge of how far it has to go, and its weight, and speed, and what safety reserve they need and they have equations (models) to tell them.

    In the latter category are a range of forecasts where we know virtually nothing about the underlying effects but we forecast on the basis that what will happen in the future is the same as what happened in the past – we just numerically fit past data and project forwards in time into the future. These forecasts may be useful but they are unreliable and potentially dangerous because some influence not seen in past data may now be very important. My understanding is that almost all economic forecasts come in this category.

    • Lifelogic
      Posted May 25, 2017 at 12:13 pm | Permalink

      As someone who read maths and later physics at university giving a probability makes good sense to me – as that is all they can really do.

      What is absurd is when they pretend they can predict the climate in 100 years time. Or even a barbecue summer. This when they do not even have the inputs. Do they know volcanic activity for 100 years, the suns output, sun spots, do they know what energy systems we will be using, what agricultural bio engineering we will have, what crops we will grow, what the population will be, what animals we will then farm ……….

      What chance have they got if they cannot even predict the climate for tomorrow with very much accuracy. After all the weather on any day is influenced by that of the day before.

      It is a new religion and a belief system not science. Doubtless why the Pope seem to have been taken in by it.

    • Mark B
      Posted May 25, 2017 at 12:18 pm | Permalink

      I can predict that there will be less daylight in winter than in summer. I am not expert or possess any special insight. But I know this to be true and it a know and accepted constant. Beyond that, I could not tell you exactly how much daylight we will receive due to good or bad cloud cover.

      My point is this. I know my limits and stick to them. But there are those that want to try and be too clever and come unstuck. eg the Banking industry.

      We need to be a bit more sceptical of those who claim to be expert.

    • Stephen Berry
      Posted May 25, 2017 at 1:34 pm | Permalink

      Let’s face it Roy, we don’t have a theoretical model to anticipate much which will happen in the social sphere. History is full of events which no one forecast and I don’t see this changing any time soon. At the world fair in 1939, the future family home had a helicopter parked out front, something that seems as unlikely as ever now. Doubt if they picked up on something like the Internet back then.

      If I were to look to the last forty years, I would hazard a guess that three of the most important social and economic happenings were the fall of the Soviet Union, the rise of Islamic Fundamentalism and the meteoric growth in the Chinese economy. I cannot recall reading many articles on these subjects in the 1970s. I even doubt if British government policy would have changed much if our experts had be able to see these three things coming.

  9. formula57
    Posted May 25, 2017 at 7:02 am | Permalink

    What is so objectionable about the struggles of the IMF and World Bank, the ECB and the US authorities is their inability to anticipate events after they have happened

    (Also, it would be comforting if the Bank of England governor asked his no doubt large and expensive forecasting team why with all its resources and access it is so much less successful at seeing the future than you and a few others have been whilst incurring, I presume, very much less cost.)

    • libertarian
      Posted May 25, 2017 at 10:00 am | Permalink

      formula57

      I can answer ( from personal experience ) why the BoE is so unsuccessful, its simple they dont listen to us people on the ground, they have a political agenda, they try to make the analysis fit the desired political outcome ( i.e. retaining interest rates at close to zero) . Their continued astonishment when reality never matches there desired model just sends them off to think up another partially plausible analysis to continue their agenda. The employment figures have been a complete anathema to them, they still dont get it.

    • Lifelogic
      Posted May 25, 2017 at 1:51 pm | Permalink

      The are really trying to get it right. if you want to see what they really think look at where they put their pension investments and their own money.

  10. Alan
    Posted May 25, 2017 at 8:18 am | Permalink

    One of the basic failures of the financial system seems to me to be its failure to estimate risk with any accuracy. The sub-prime mortgages were assumed to be bundled with other loans in a way that reduced the risk, but did not; the loans to euro countries were assumed to spread the risk over countries that were safe and those that were unlikely to be able to repay, but they did not; Northern Rock thought that it could rely on getting further loans, but it could not.

    To some extent these failures came from those who made the assessments not fearing enough the consequences of getting them wrong, in other cases they were just unaware that they were taking a risk. The taxpayers were certainly unaware that they were at risk if the bankers’ assumptions were wrong. I don’t remember anyone making that clear.

    I think one of the responsibilities of our politicians is to ensure that taxpayers are aware of what risks others are taking in their name. I’m not sure that are doing that now.

  11. Posted May 25, 2017 at 9:03 am | Permalink

    Every group of forecasters should have a psychologist amongst its members who might be able to give an insight into the reaction of individuals to any change. Do low interest rates sell more goods because people can borrow cheaply? Do savers guard their savings even more carefully because of low interest or do they go out and blow the lot making them a potential problem for the future? There are lots more questions about individual reactions to changes; how will people react to increased taxation is the most obvious! I suspect that forecasters tend to believe people will react logically (ie as they would) but I don’t think that this is always true.

  12. MickN
    Posted May 25, 2017 at 9:18 am | Permalink

    Sir, I know you are not currently an MP but if you have a way of making a few suggestions to the Prime Minister of how she might recover the lead that she had in the polls before the manifesto was launched might I suggest the following:
    1 Remove the ridiculous ring fence around the foreign aid budget and cut it by 12 billion or so.
    2 Use the money saved to improve homeland security and enhanced border checks.
    3 Immediately remove the passports from anyone currently fighting a Jihad in Syria or Libya and deny them entry back into the UK. Given that we hear that we are all united and stand together there would not be any problem for the peace loving amongst us. Any that object to this should start alarm bells ringing and showing us where these extra resources should be deployed.

  13. MickN
    Posted May 25, 2017 at 9:25 am | Permalink

    I noted at the weekend that Mr Corbyn was asked repeatedly to condemn terrorism by the IRA and refused to do so. We have Manchester shook by an appalling act of terrorism but it won’t stop them voting for the red rosette on June 8th.

    • Mitchel
      Posted May 25, 2017 at 12:38 pm | Permalink

      I’m not a supporter of Mr Corbyn but equally it could be argued that by his refusal to support our overseas misadventures,he is absolved of any blame for the blowback.How about the Tory frontbench?

    • rose
      Posted May 25, 2017 at 8:54 pm | Permalink

      Thirty years of it: 3,500 dead; and injured and maimed on top of that.

  14. Antisthenes
    Posted May 25, 2017 at 9:51 am | Permalink

    Forward planning is not possible without using historic information, pure and applied calculation and second guessing unknowns and the acceptance that the degree of accuracy will vary dependent on a number of factors. Factors such as complexity, unknown unknowns, fickle human behaviour, competence and preferences of the compilers and forecasters. Generally speaking in the world of work in the private sector forward planning is skillfully applied.

    That is not true in the world of politics and government as competence, preferences and predicting what is in fact unpredictable human behaviour make up the greatest elements in forward planning. In the public sector ideology and favoured theories are by far the greatest drivers in forecasting and planning leading nearly always to the wrong decisions and policies being applied. If the Fed raises interest rates again it will be for political reasons not economic ones. QE and low interest rates have created a problem that to fix now or possibly ever will create problems far worse that the ones they were used to fix in the first place. Governments use the wrong means and information to govern us but no one cares in fact many applaud them for it so we will have to await the inevitable consequences then we will care.

  15. Peter Martin
    Posted May 25, 2017 at 9:56 am | Permalink

    If there is too much debt around the last thing you want to do is so tighten money that people cant afford to service their loans.

    That’s true. But on the other hand, the response to the GFC in 2008 involved lowering interest rates which only encourages even more debt. Since then interest rates have been consistently cut. Last year the supposedly independent BoE cut Bank Rate to an all time record low of 0.25%to encourage more borrowing to stimulate a depressed private debt-ridden economy. In other words, we encourage yet more private sector borrowing to compensate for having too much previous borrowing. So what next? Negative interest rates?

    I think this is known in the economics trade as New Keynesianism. I doubt very much if JMK himself would have approved though!

    • Richard1
      Posted May 25, 2017 at 1:16 pm | Permalink

      He would surely not have supported it. Nor would he have supported the supposedly ‘keynesian’ policy of the UK Labour govt to run a 5% budget deficit at the height of a boom before the financial crash. No wonder Labour’s great recession was so bad.

      • Peter Martin
        Posted May 26, 2017 at 9:41 am | Permalink

        @ Richard 1,

        According to my figures which I just obtained by Googling {UK Budget Deficits Images} the budget deficit of that period rarely went about 3%. That was quite a bit lower than the typical deficits run by Mrs Thatcher’s government.

        But I wouldn’t blame her Govt for running that deficit. If I buy £100 of premium bonds then I am creating £100 of government debt. Is it fair to blame Government for something that I have chosen to do?

        Similarly, countries like Germany like to sell us lots of stuff and save most of the money they earn. The Bundesbank buys gilts rather than premium bonds but the effect is just the same. They are creating Government debt when they do that and it is entirely their decision.

        The Government has to deficit spend the proceeds into the economy to keep it from falling into recession.

        So the economy has changed considerably since Keynes’ time. His comments have to be understood in the current circumstances of high trade imbalances around the world.

  16. graham1946
    Posted May 25, 2017 at 10:00 am | Permalink

    Financial forecasting is practically impossible as it is assumed that there is some sort of logical process to it, whereas it is mostly chaos brought about by ‘events’ which cannot be known. Social forecasting should be better but is mostly not, with governments being surprised for instance that the baby boomers would be getting old about now. We do not properly even know how many people are in the population, so education, health and municipal matters are always in error and standards fall, followed by tinkering from governments, always too little, too late.

    However, here goes my forecast. Private debt is out of control especially with car buying which people cannot properly afford and is being stoked again by the banks and lenders. Another crash is in the making.

    This is sub prime all over again except this time with consumer goods rather than property. The Banks should be warned that they will not be baled out again and will be allowed to go bust. Deposits up to the current limit of 100,00 Euros should be backed, but that is all to protect the ordinary saver/investor. Big money can look after itself as it always does.

  17. stred
    Posted May 25, 2017 at 10:27 am | Permalink

    There are a lot of books around predicting the future of computing and the changes which will affect umanbeans, to use the Dahl term. We will come to rely on smart chips for everything from education and nursing to sexual intercourse. i am not sure this is going to actually happen. After pressure from family smartphone gawpers and realising that I could not even park without one, I bought a big smartphone which had a keyboard which almost fitted my small finger.

    It is really clever and if it decides to ask me to talk to it
    (this seems to be random) I can say John Redwood and it tells me his life history and then I can find his diary and read it. But then smart predictive text takes over and every few words it is necessary to delete and correct. The final post took 20 minutes to get the email address without it deciding to put capitals in or spaces and which it did while captcha timed me out and asked to find hills and roadsigns about five times. I managed it but now google has remembered about five mis-spelt email addresses and it takes time to magnify and find the right one.

    As for these forthcoming sex robots, the photos of them look horrible, rather like some dimwitted Essex tart but more scary. So I think this future of computerised
    bliss is likely to fail and today my old laptop is back in use.

    Today’s capcha called trousers pants and did not know a square with street signs. It took 5 attempts.

  18. acorn
    Posted May 25, 2017 at 10:28 am | Permalink

    The same cohort of New Keynesian economists – and their models – are still running the show, still following the same erroneous rules that brought us the 2008 Crash. They are still embedded in Treasuries; Central Banks; IMF and academic teaching. They all have a collective interest in making sure they all continue to get paid, flogging the neo-liberal economic myth, that heavily favours the top end of the Gini curve. Google “Where Danger Lurks: The Dark Recesses of the Orthodox Mind”

  19. stred
    Posted May 25, 2017 at 10:33 am | Permalink

    Last year the ‘worlds best banker’ decided to lower interest rates, based on his prediction of economic stagnation. The fact that this had not occurred apparently had not been noticed. Now we have negative real interest rates. It would be a good idea to keep predictions in line with the present. Perhaps it was done in order to suit government borrowing.

  20. Mactheknife
    Posted May 25, 2017 at 10:49 am | Permalink

    JK Galbraith….”The only function of economic forecasting is to make astrology look respectable”.

    • eeyore
      Posted May 25, 2017 at 11:37 am | Permalink

      Dear old Ronnie Reagan may not have known much about economics but he had an astrologer on the payroll. Didn’t do him – or the world – any harm.

      • Mactheknife
        Posted May 26, 2017 at 3:55 pm | Permalink

        True….but as one who is required to forecast within my business role I can say that most of it is educated guesswork dressed up with data to justify it. How real that data is often depends on who produced it. The truth is that there are so many “Black Swans” out there at any one time you are in the lap of the gods…..which brings us back to astrology !

  21. Bert Young
    Posted May 25, 2017 at 11:15 am | Permalink

    All forecasts have to be taken with a pinch of salt . Generalities abound but picking the right one is nothing more than a stab in the dark . There were many issues that I had to face up to during the 30+ years I ran my business , frankly it was more about people judgement than anything else . Steering any sort of a course is subject to the winds that blow and the efficiency of the boat’s crew . Trust and motivation are ingredients that make success work .

  22. acorn
    Posted May 25, 2017 at 11:17 am | Permalink

    For those that struggle answering the following four questions, Google: MODERN MONEY THEORY: THE BASICS – New Economic …
    1. Does the government need to receive tax revenue before it can spend?
    2. Does the government need to borrow before it can spend?
    3. Does the central bank need to receive reserve deposits before it can lend?
    4. Do private banks need to receive demand deposits before they can lend?

  23. The Prangwizard
    Posted May 25, 2017 at 11:17 am | Permalink

    This is a forecast.

    We will get no-where with security until Mrs May and all the rest speak more plainly.

    She’s made a statement this morning; talking about her meetings etc., She talks about terrorism and extremism not once has she identified the source and motivation.

    This is not Christian, Mexican, Italian, Sikh terrorism.

    It is islamic terrorism. She should say it and so should everyone.

    It’s political correctness and this sort of weakness that has got us here. She and the thousands like her who refuse to acknowledge the truth carry a very heavy responsibilty, and ought to eventually pay for their neglect.

    They need to be replaced by stronger people.

  24. Richard Butler
    Posted May 25, 2017 at 11:28 am | Permalink

    My pet interest.

    Economists and social scientists tend to extrapolate from a current setting, rear view mirror gazing.

    Take the famous predictions made in the multi million selling book ‘The Population Bomb’. It’s central thesis was that by late 70’s / early 80’s the west would be in meltdown due to global famine.

    The projections were sound in terms of extrapolating from the current scene.
    They failed because, as ever, they did not take account of changes underway, in this instance the pioneering green revolution which drastically improved crop yields.

    In conclusion the best thinkers make the effort to see and feel what’s going on at coal face level, not so much reliance on pouring over charts.

    I know form my finance business that incomes are higher than official stats reveal. Why – because many more are self employed and can for example pay a portion of their income to their spouse, thus pulling down official income stats. I bet economists don’t know this as they rarely visit the coal face.

  25. lojolondon
    Posted May 25, 2017 at 11:57 am | Permalink

    Dear John,
    Contrary to the MSM reports of the situation – I think the Japanese nuclear situation was an excellent advertisement for the safety of nuclear power. An ancient, under-maintained nuclear power station takes a catastrophic hit from a tidal wave, putting it out of commission in a most ‘dangerous’ way, and what was the result? The death toll was 19,000 from the tidal wave, zero from the nuclear incident. Those are the facts, the MSM has been running around hysterically saying we need to take heed, but a look at the facts will tell you that nuclear is the best way forward.

  26. lojolondon
    Posted May 25, 2017 at 12:20 pm | Permalink

    John, the media is reporting that the Manchester bomber flew to the UK via Dusseldorf in the last week. I am just wondering – how on earth does a known AlQaida operative get onto a commercial airline in Europe at this stage?? Surely this has to be stopped today!!

  27. Prigger
    Posted May 25, 2017 at 7:55 pm | Permalink

    “The reason some of the world institutions are so bad at forecasting economies is they have a vested interest in stability and come to believe their own reassurances. ” How the BoE in its prognostications before and just after 23rd June 2016 had a “vested interest in stability” is not so easy to fathom.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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