Sunday, May 25, 2008

The Unknowable Future

There has been a curious discussion over at Iain Dale about economic forecasting. Iain had observes the wild inaccuracy of the government's published oil price predictions and comments, 'You'd think this document needs radical updating.' Assuming he means updating to take into account the present price of oil, this is a profoundly irrational remark. The inaccuracy of the predictions is conceptual; it does not arise not from a lack of information. Predicting the oil price is impossible and always has been. Nick Drew, in the comments, points out that Galbraith, Keynes and Drucker have all made this point about economic forecasting in general. It doesn't work and never has. But people still blithely assume we just need more information. In fact, there is plenty of evidence to show that more information leads either to worse forecasts or to increased confidence in forecasts, which is even worse. The really interesting question here is: why do we continue to produce such forecasts - and pay people large sums of money to make them - when they are always wrong, or at least wrong enough of the time to make them useless? Government will say forecasts are needed for planning. Again, profoundly irrational - what use are plans based on inaccurate forecasts? The contemporary imagination seems to have problems accepting the unknowable future. Forecasts are comfort blankets; they don't actually protect you from monsters.


  1. It is more a case of being aware of how uncertain we are in our forecasts. There is a certain amount that can be forecasted--a bit like the weather, where certain systems are unstable and almost impossible to predict and others are stable and relatively easy to predict. The weather people have got quite good at realising and recognising their limitations.

    It is when forecasting is difficult that it becomes really worth investing in it to get it right--i.e., set aside the conceit and draw in the error bars on the forecast.

    I can give you one long-term forecast that you can take to the bank. This is the end of cheap oil. There is an excellent science and it has been comprehensively documented but ignored due to wishful thinking. These were long-term forecasts with much uncertainty because of the incentive for OPEC producers to talk up their reserves, but the underlying dynamics were undeniable, obvious for some time, and so it has proved to be.

  2. Forecasts are comfort blankets; they don't actually protect you from monsters.

    True, but goverments, and those who like to tell others how to run their lives, derive great power and self-satisfaction in pretending they can.

  3. And people want governments to tell them they can.

    Chris, what can't be forecasted so well is what technologies will be the best replacements for oil based energy. Government planners have not been the best at picking economic winners and losers. The market does a much better job at that.

  4. easy, economics is NOT a science, yes one or two certain rules apply to supply and demand, but like Math too, its not a science it is a language.

    As the equation or calculation gets longer and more variables are added, the margin for error grows, and time and human life is quite some variable.

    As Popper said, the future is Open.
    it always was and it will always be.

  5. Fact...........
    Central heating oil.......
    Mid 1997 = .09 per litre
    May 2008 = .66 per litre
    Statisticians, forecasters = guestimators.
    Clueless, not required, waste of space, surplus to requirements, toss a coin for a more accurate assessment.

  6. The root of it is the human urge to believe we can rationalise and therefore retain control of everything that affects us.

    There is another urge to irrationalise things (and invoke magic, fate, God etc) but I can't quite work out if this is an opposite urge or the same one.