Debate Magazine

"My Advice for Rishi Sunak: Superforecasters Won’t Make Your Budget Better"

Posted on the 25 February 2020 by Markwadsworth @Mark_Wadsworth

Stephen King, HSBC's Senior Economic Adviser gloriously misses the point in yesterday's Evening Standard:
Rishi Sunak, the Chancellor of the Exchequer, is presenting his first Budget on March 11.  To do so, he'll need some vaguely credible economic forecasts. Without them, the fiscal arithmetic is no more than guesswork. In the bad old days, chancellors simply looked at themselves in the mirror and came up with numbers that best suited their political purposes.  
Gordon Brown kept changing his forecasts to prove there could be "no more boom and bust", singularly failing to spot the looming global financial crisis.
In the late Eighties, Nigel Lawson persuaded himself that Britain was about to embark on a prolonged period of faster growth and lower inflation, conveniently ignoring the housing boom that led to the early-Nineties recession.

He goes on to dismiss the whole idea of forecasts - either they are wrong; politically unpalatable; or they are self-fulfilling prophecies.
And that's ultimately the problem with economic forecasting, particularly in the public realm. Some things just aren't forecast for the simple reason that, until they actually happen, it's easier to pretend otherwise.
In May 2008, midway between the failures of Northern Rock and Lehman Brothers, the Bank of England apparently regarded the risk of recession as very low — in hindsight a seemingly ridiculous conclusion.

Does he not even bother to read what he has written and look for the most basic patterns - to wit house price bubble and credit bubble => house price crash and credit crunch => recession? he gives two recent examples of exactly that. That's all you have to look out for.
To make matters even easier, these crashes happen every 18 years or so (he mentions 1990 and 2008, next one due 2025 or 2026).
The Chancellor has a choice - press on with Home-Owner-Ism and worry about the mess later, or take active steps to dampen leveraged land price speculation.
He can re-adopt 20th Century Georgism Lite (mortgage caps, rent caps etc) or he could do the decent thing and replace as many taxes as possible with Land Value Tax.

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