Here is something we can all identify with. Economics was labelled the ‘dismal science’ by the essayist Thomas Carlyle way back in the 19th Century.
Nothing seems to have changed. Both its forecasting record and its doom-laden predictions are proving dismally off the mark.
When the Bank of England was given its independence in 1997, one of the architects Ed Balls was keen that it become an economic powerhouse, achieving the same respect earned by the German Bundesbank.
Lord Mervyn King, as deputy governor and then governor, sought to make this happen.
In spite of the history of Cambridge economics, exemplified by John Maynard Keynes, King bemoaned the fact that Britain was simply not producing enough PhD economists and had to look to Italy for recruitment.
Blinkered: Instead of being regarded as a font of wisdom he Bank of England has become a byword for poor forecasting and groupthink
The Bundesbank’s reputation as an economic powerhouse diminished as responsibility transferred to the European Central Bank thanks to the late Jacques Delors.
By locating the ECB in Frankfurt and stuffing it with Bundesbank exiles it was imagined that monetary orthodoxy would remain intact.
Over almost a quarter of a century the German grip has been diluted, often leaving the Bundesbank as a dissident shouting from the sidelines.
As for the Bank of England, in spite of the heavy investment in economics, its forecasting record has been lamentable.
Instead of being regarded as a font of wisdom it has become a byword for poor forecasting and groupthink.
Last month it was criticised by the House of Lords economic affairs committee (which includes Lord King) for failing to see the arrival of ‘high and persistent inflation since 2021’ and a lack of diversity of views on the Monetary Policy Committee.
The Bank’s Court, its non-executive dominated board, had already recognised the shortcoming and called in former Federal Reserve chairman Ben Bernanke to mark its forecasting homework.
Just so the Bank doesn’t feel put upon, it is worth noting that it has not been alone in crass judgments about the UK.
Under the leadership of Christine Lagarde, the International Monetary Fund predicted that Brexit would be ‘pretty bad to very, very bad’ for the British economy.
Even devoted opponents of Brexit would have to admit that aside from prolonged queues at passport controls and laborious customs inspections it hasn’t been that awful.
Indeed, latest assessments by independent forecasters, such as audit and consultancy firm PwC, suggest that in 2024 UK growth will outpace several of its European competitors.
The opposition Labour and Lib Dem parties continue to insist that the Tories ‘crashed the economy.’
Yes, for a few short weeks after the Liz Truss experiment in freewheeling economics, it was ghastly.
But one has yet to hear the Labour leadership acknowledge that the UK subsequently outperformed expectations and data failed to record the resilience of post-pandemic output by 2 per cent or £50billion.
It is not just the UK forecasts which have been fallacious.
The Economist magazine recalls that 2023 was a bad year for economics more generally. There was huge pessimism about America and the likelihood of recession. Instead the US economy powered ahead by an estimated 2.4 per cent.
That should not be a great surprise given the fiscal boost of Bidenomics and more than a decade of monetary largesse.
Several studies have challenged well-entrenched precepts. It has long been thought that the US would be a richer place were more homes to be built around growing cities.
Not true, argue economists at the University of Washington. It has been widely assumed that social mobility has declined in recent decades in the US.
That too is false news. There is much more opportunity than in the past to bypass the birth lottery.
In Britain forecasting groups such as the Resolution Foundation and social action organisations such as the Joseph Rowntree Foundation bang on about social inequality: a rising gap between rich and poor.
Certainly, at the very bottom of income scale higher energy and food bills have caused pain.
Office for National Statistics data shows that on some measures income inequality has been falling by 0.2 per cent a year. Similar patterns are seen in the US in spite of Trump’s 2017 tax cuts.
Who could have guessed that so much of our economic narrative is plain wrong.
