Saturday, 6 July 2013

More macro-quackery

By John Burton

During a briefing on 5 November 2008 - conducted with big wall-chart graphs - about the ongoing financial ‘crunch’, the Queen dropped a (bombshell) question on the assembled throng of academics: ‘If these things were so large, how come everyone missed them?’

The venue (the LSE) was certainly a highly pertinent place for the Queen to ask this question about macroeconomic forecasting, as, in the previous year (2007-8), the LSE had been the largest single institutional recipient of UK taxpayer finance for economic/econometric research funnelled via the Economic and Social Research Committee (ESRC: a quango, 100% taxpayer-financed). Moreover, it is now openly admitted by a leading (and Nobel Laureate) economist at the LSE, Professor Christopher Pissarides, that he and others at the LSE (as elsewhere) had failed to foresee the nature, timing and severity of the crunch.
However, such were the perturbations wrought in the Establishment ether by this Right Royal Question that the British Academy (technically/legally, a ‘charity’, concerned with the humanities and social sciences; in reality financed 90% by the UK taxpayer) felt it necessary to convene a meeting of the Great and the Good (in this instance, an admixture of eminent/orthodox macroeconomists and various mandarins) to consider a reply to the HM Question.

The subsequent 3-page missive (sent on 22/7/09 to HM) accepted that there had been a (very regrettable, but also very general) failure of macroeconomic forecasting in this particular instance, which had (they alleged) many causes; but was ‘principally’ due to ‘a failure of the collective imagination of many bright people’. If I interpret this (rather curious) phraseology correctly, the British Academy letter to HM is ascribing the failure of macroeconomic forecasting, in the matter of the crunch, to groupthink.

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