Why economists get it wrong | Gary Stevenson takes on former chancellor Nadhim Zahawi
5,474Gary Stevenson and Nadhim Zahawi go head-to-head on the problem of predicting economic change.
Why do economists consistently struggle to make accurate predictions?
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Governments, bankers and economists spend a great deal of time predicting the economy. Their forecasts have a profound effect on policy. The forecasts though are often wrong, and critics argue we just don't have a credible theory of how the economy works. In 2023, 70% of economists polled predicted a US recession which never happened. In 2021, 16 of the 36 living American Nobel economists declared “there was no threat of inflation”. In Britain, the government body tasked with forecasting, the OBR, has admitted 'genuine errors' in its forecasts of inflation. Not surprisingly one of the world's leading economic research institutes concludes 'pretty much everything we could have got wrong, we got wrong'.
Should we conclude that 70 years after Keynes, and 40 years after monetarism, we lack a robust overall economic theory and urgently need one? Can we eradicate the impact of political beliefs and assumptions in economic forecasting? Or are forecasts from economic models always going to fail to make precise predictions and we just have to recognise that reality?
#economics #costofliving #finance
Nadhim Zahawi is a politician who served in various ministerial positions under Prime Ministers Theresa May, Boris Johnson, Liz Truss, and Rishi Sunak. Gary Stevenson is a former financial trader who became an activist against inequality and a prominent YouTuber. Abby Innes is an Associate Professor in Political Economy at LSE focusing on how the UK’s economy mirrors the Soviet Union. Hosted by Hilary Lawson.
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00:00 Introduction
00:27 Why the best economists work for private companies
02:18 Predictions aren't based on scientific measurement
03:08 The financial lure of working for banks
05:35 How pollsters address mistakes in their data
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