In 1995, my fellow Financial Times columnist, the economist John Kay, examined the long-run record of the UK's leading economic forecasters and concluded that they were birds of a feather. They tended to make similar forecasts, and then the economy disobligingly did something else, with economic growth usually falling outside the range of all 34 forecasts.
A one-off? It seems not. Not long ago I repeated the exercise with forecasts for economic growth from 2002-2008, for the UK, US and Eurozone. Little had changed. For instance, 20 out of 21 non-governmental forecasts made in December 2003 were too pessimistic about economic growth in the UK in 2004. In December 2004, 19 out of 21 forecasters were too optimistic about growth prospects for the year ahead. While 2006 beat almost everyone's expectations, almost everyone's expectations beat 2002.
And 2003 was a curious year. There was no unanimity at all: the spread between the highest forecast and the lowest was unusually wide. Perversely, the average forecast was, for a change, correct.
The international picture is not hugely different. In the Eurozone, forecasting over the past few years has been so poor that it is kindest to avert our eyes. US forecasts are better: they cluster together more tightly and even so, the economy occasionally falls within this narrow spread of forecasts. Still, it is common for the actual outcome to fall either in the top ten per cent of forecasts, or the bottom ten per cent.
In short, my findings simply confirm John Kay's original conclusion: economic forecasters flock together, and the sole dissenter tends to be the economy itself. One obvious question, then: since economic predictions are not particularly successful, why are we so keen that economists make them?
It is surely not because we enjoy seeing regular predictive pratfalls — on the contrary (as Dan Gardner argues in a new book, Future Babble) we are rather tolerant of our soothsayers, assuming that correct forecasts are the result of skill rather than luck.
Our hunger for futurology sometimes seems pathological. In my first career as an oil company economist, I recall telling corporate planners that it was simply impossible to say what economic growth would be. One of them responded: "I still need a forecast. Imagine I am about to fire a missile and I need you to give me some coordinates. You say the coordinates aren't very accurate — fine. I still need to fire my missile."
I was too junior to make the obvious response: if you don't have accurate coordinates, don't shoot off missiles.
A business strategy that requires an accurate economic forecast to be successful is not likely to be a successful business strategy.
Tim Harford is a Financial Times column and author of Adept: Why Success Always Starts With Failure (Little, Brown, £20).
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