Economic forecasting is not a science

Prashanth Perumal in The Hindu

India lost its tag as the ‘world’s fastest-growing economy’ last month as its fourth quarter GDP growth fell to 6.1%, the slowest in two years. Very few economists expected the slowdown. In fact, most waited for the economy to rebound as it quickly healed from the impact of the demonetisation of high-value rupee notes in November. Critics of demonetisation felt vindicated, particularly after GDP figures for the third quarter suggested that the shocking, overnight move to demonetise had very little negative impact.

Yet, for all the sermon delivered by the country’s punditry, the fact remains that macroeconomic forecasting is a lousy business — regardless of who makes the predictions. For one, data cannot prove or disprove any hypothesis as they do not establish causation. The mere fact that growth slowed in the first full quarter after demonetisation does not prove decisively that the slowdown was caused by demonetisation. As some have speculated, the current slump in the growth rate may be a continuation of the trend of slowing growth witnessed even before demonetisation.

Nor does the unexpectedly strong GDP growth in the third quarter prove that demonetisation has had no negative impact on the economy. The economy is a complex organism with several variables working in tandem, which makes prediction an almost impossible task. This is in contrast to the physical sciences where controlled experiments allow scientists to tease out the influence of any variable.

Two, there are no constant relationships between variables when it comes to the economy that allow for making exact predictions. So, even if economists were to dig into historical data and find the exact impact that demonetisation has had on GDP growth, there is no guarantee that it would hold in the future. For instance, people’s expectations may change which makes them adapt to a cashless economy better, thus blunting the impact of demonetisation on GDP growth.

Three, macroeconomic forecasting is focussed to a very large extent on measuring things that are fundamentally immeasurable. When it comes to measuring GDP, for instance, the price that is assigned to a good as its value is arbitrarily decided by statisticians. This happens despite the fact that the value of any good lies in the eyes of the consumer. Finally, both innocent and political biases influence the process of official data collection to calculate GDP, a fact that raises questions about its reliability.
None of this is to say that economists can make no useful predictions. But such predictions are more likely to be qualitative rather than quantitative. Any wise economist could foresee that demonetisation would have a substantial impact on the economy; simply from the premise that money greases the wheels of commerce, so outlawing it would affect demand and create chaos across production lines. But trying to quantify its impact in terms of the exact percentage points of growth that would be shaved off GDP is a futile exercise.

On writing a column - Credibility of political pundits is low but voters’ need for punditry high

By Vinod Mehta in The Times of India

Soon, the NDA government led by Prime Minister Narendra Modi will chalk up 100 days in office. For some mysterious reason this magic figure is considered an appropriate moment by the media to take stock. It is a rite of passage.

One expects that the verdict on his performance will be sharply divided. One take on the report card will show BJP scoring a century in as many days. The other take will give the party half a ton, and another will award the government less than pass marks. In a robust democracy with a lively media, all three perspectives must be seriously examined before final evaluation is made. The difficulty for citizens is they lack the tools and instruments to make an informed judgment.

So, what options does the voter have? He can speak with friends. He can go online. He can tap a person who has a reputation for being knowledgeable in such matters. But most, i suspect, will rely on the media pundit in the shape of the opinion page writer. I would go so far as to say that political commentary is the main resource available to most people to help them make up their mind.

So far so good. Unfortunately, at this precise moment a problem arises. Recently, i was talking to an old colleague, and i told him i had read an article by Mr X which i liked. “Oh, he is not to be believed,” he replied. “He gets all his information from xxx” And he then mentioned the name of a minister in the present government. My interlocutor added that the gentleman we were talking about had an axe to grind, an `agenda`. Accordingly, what he wrote needed to be taken with a shovel of salt.

Frankly, we live in such ‘interesting’ times that it is virtually impossible to locate a commentator without an agenda. An agenda-less commentator is an endangered species. Which brings us back to the luckless citizen looking for views and positions he can put his faith in. Who does he turn to if all public affairs gurus are openly partial?

I will not be revealing any secrets when i say the credibility of the pundit is at an all-time low, if you exclude the Emergency. The prevailing atmosphere of suspicion and conspiracy theories is so toxic we should not be surprised by the strong inclination towards negativity in the people. As a result, even while he is perusing a 900-word column, the reader is wondering, “Why is this lying bugger lying to me?”

These days anyone who has spent a couple of years in the profession feels qualified to become a pundit. Nothing wrong with that, but the question is, what preparation did the said journalist make before he walked into the hallowed editorial space? When i became an editor in 1974, for over a decade i never dared to write an opinion piece. I was terrified because i felt too raw and too naive. Instead, i embarked on a course of self-education.

Sadly, there were, and are, no textbooks on column writing, no mass communication institutes which can teach you the craft. The sole guide: read pundits you admire — those with a standing for honesty and objectivity.

By objectivity i am not suggesting you abandon your prejudices and preferences, but keep them in check. And, sometimes, restrain them if the message on the wall is too clear. Pseudo-secularists and assorted Modi-detesters could not ignore the hawa blowing in his favour across the country in 2013. Whatever your predilections, you had to take note of the wind whose intensity was growing by the week.

If i can identify one quality the reader is looking for in an opinion column it is ‘trust’. The reader is aware from where the columnist is coming from, what his leanings are. Despite that, he needs to ‘trust’ the writer. He must feel confident the column, at the least, will acknowledge reality, not deny reality. In my 40-odd years of editorship the highest compliment paid to me, among zillions of abuses, went, “I don’t like your opinions but i don’t think you will deliberately mislead me.”

At a time when the entire media is increasingly perceived with suspicion, why should the column-writer remain uncontaminated by partisanship? After all, the pundit is a creature of the environment we all inhabit. He does not live on Mars.

The challenge for those privileged to contribute to the ‘heart of a newspaper’, then, becomes even more daunting. In a society where columnists and editors play favourites, the victim is the reader. Who looks after his interest? Media people day in and day out affirm their commitment to the reader, and the reader alone. Alas, the commitment doesn’t stand up to scrutiny.

In short, truth and readability are essential for a column. Remember you don’t want to tell the truth in a way which puts your reader to sleep.

Is there any solution for the present depressing situation? I cannot easily think of one. However, if a solution exists it lies in the hands of the reader. He must reject those columnists (and the papers they write for) that flagrantly violate the basic canons of trust. The reader will be doing the media a favour and also the pundit, who must know he has been caught out.

Wave a banknote at a pundit and he'll predict anything

Of course it is outrageous to jail scientists for honest errors, but it is legitimate to hold them to some account

• 
• • Simon Jenkins
  • The Guardian, Thursday 25 October 2012 19.30 BST

Illustration by Satoshi Kambayashi

On the evening of 5 April 2009, Luigi Guigno of L'Aquila in Italy was phoned by a sister terrified by tremors under their village. He told her not to worry. Government experts in "the forecasting and prevention of major risks" had just been on the news declaring there to be "no danger" of an earthquake. They need not go out into the street. A few hours later an earthquake struck and Luigi, his pregnant wife, their son and 300 others were crushed to death.

This week a local judge jailed six of the scientists, not for failing to predict the quake but for giving what he regarded as reckless reassurances. He fined them £6m and disbarred them from public office. World scientists condemned the verdict as inquisitorial and medieval. Britain's Lord May said it ignored the basic nature of scientific inquiry. Luigi's relatives disagreed. A local official said simply: "Some scientists didn't do their job."

When a forester fails to predict that a tree might fall and it kills someone, he is arrested. The same goes for a train mechanic who fails to repair a carriage, a cook who poisons a customer and a builder whose house collapses. They didn't mean to kill, but they failed to forecast what might ensue from their defective expertise.

Why does the same not apply to the professional scientists, experts and pundits on whose predictive genius so much of our life depends? The answer is that they claim protection, either through (usually weak) self-regulation or by pleading Lord May's fifth amendment, that the nature of scientific inquiry exonerates them of harmless mistakes.

This week agriculture ministers were left floundering by conflicting scientific guidance on bovine TB and badgers. Transport ministers were humiliated by statisticians failing to predict revenue on the west coast railway. The Totnes MP, Sarah Wollaston, called attention to the hysterical 2009 swine flu "forecast", which panicked Whitehall into blowing £500m on dubious Tamiflu, whose test results it refused to disclose.

Yesterday we were told that the nation was recovering from a second "dip" in a recession, which its forecasters had failed to predict. This is despite government economists being served by ever more powerful computers and mathematical models. No one, to the best of my knowledge, has been called to account for this failure.

Science has rarely enjoyed greater status. Schools are in thrall to it. Broadcasters grovel at its feet, with hours of programmes devoted to children gazing adoringly at scientific researchers, depicted as funny, garrulous, lovable role models. Science has taken the place of religion in a cocoon of uncritical certainty. Those who claim the title "scientist", be it natural or social, expect to combine the immunity of diplomats and the infallibility of popes. Science is merging into scientology.

Of course, Lord May is right, that academic inquiry must proceed uninhibited by risk from error. That is what universities are for, and why they should stay independent of the state. But the Italian geologists were not doing research: they were paid to apply their expertise to keep the public safe. They were not researching, but advising. They failed catastrophically.

The truth is that there is one law for the officer class and another for the poor bloody infantry. When experts trained to detect seismic phenomena fail, their fraternity does not criticise or review their work, but treats them as innocent and relieves them of blame. If an ordinary worker miscalculates the risk, if trains crash, trees fall, rivers are polluted or foodstuffs rot, he goes to jail. The difference is not in class of error but in class of person.

Since the dawn of time, people have craved prediction against uncertainty. They have paid soothsayers, witchdoctors, stargazers and palmists. They ask journalists at parties: "Who is going to win the American election?" and seem cheated if the reply is "I just don't know."

Some people are paid to forecast. Their job is to make assertions about the future, assessing likelihood over a spectrum of certainty. When a scientist says this or that "will happen", we expect it to have greater credence than if he had merely gazed into the entrails of a sacred goose.

The worst offenders are meteorologists. A Devon entrepreneur, Rick Turner, declared last month that he would sue the Met Office for inaccurate and "persistently pessimistic" forecasts, which had cost his region millions of pounds in lost revenue. I hope he wins. The gloomy Met Office, seemingly in the pay of the outbound tourism trade, is reckless with other's people's livelihoods. The weather on the Welsh coast this summer was not ideal, but it bore not the slightest resemblance to the daily "forecast" of it on the radio. The sun shone for far more hours than it rained, yet the forecast kept people away in droves. And there was never any hint of correction or apology.

Prediction matters to people. If the variables are too great, science should shut up, rather than peddle spurious expertise. But you can wave a banknote in a pundit's face and he will predict anything you like. Of course, it is outrageous to jail scientists for honest errors, but it is not outrageous to hold them to some account. When did Lord May's Royal Society last inquire into a scientific scandal? Journalists, like bankers, are getting hell these days for their mistakes. Why let seismologists off the hook?

Why pretend we know everything? It's time to embrace uncertainty

It is certainty that we need to worry about, as extreme ideologies prosper in these uncertain times

• 
• • Suzanne Moore
  • guardian.co.uk, Wednesday 14 December 2011 20.00 GMT
  • larger | smaller

Who knows if David Cameron's refusal to sign the EU treaty is a good thing or not. Photograph: Yves Herman/Reuters

I don't know what I am talking about. And, quite frankly, you should be relieved that I know that I don't know. The world is full of people proclaiming about stuff they don't know much about. My trade depends on it. Pundits, politicians and economists, too, all depend on some kind of bladder-busting meta-analysis to keep us quiet. In fact, they are just winging it.

Too many nights I have watched economists on television being treated with undeserved reverence. "Economics is largely a made-up pseudo-science!" I want to scream. After all, it has been almost entirely useless in predicting the mess we are in. Indeed, by coming up with grotesque calculations whereby rich people's investments were effectively risk-free and financed by the jobs and homes of the poor, many economists were cheerleaders pre-crisis.

This is not another anti-bank rant. It is now self-evident that banks did some bad stuff, but the diplomatic immunity they were granted was not merely political. Anyone who makes out that they know what they are doing and can turn a fast buck and believes, yes really believes, in something – anything, themselves even – is facilitated by society. And, yes, this is usually backed up by a narrative of questionable facts.

What is valued is certainty. What is devalued in such a world is uncertainty. Those who aren't sure are weak. Poor. Faithless. Uncertainty is often worrying and feminised. Real men know real things. So they have been lining up to tell us that David Cameron's refusal to sign the EU treaty is the best thing ever to have happened, or the worst thing ever to have happened, when, actually, no one is quite sure. Reconciling a belief in the democratic process with the recognition that the euro is still in big trouble and Greece may well go anyway, means it is impossible to line up clearly in the Eurosceptic versus Europhile shadow boxing. It is up in the air.
As this year has been a news tsunami, it would be far more interesting to acknowledge what we did not know rather than what we did. Most experts did not predict the riots, the Arab spring, the extent of the economic meltdown. I recall meeting a learned professor in Tel Aviv three years ago who explained that Iran not Egypt was now the centre of the Arab world and everything would start there. Like many others, I thought recession would produce some kind of resistance but had no idea how that would manifest itself. As for the financial crisis, our lack of foresight is mind-boggling.

But in public, and especially in politics, an admission of uncertainty is seen as problematic. At a dinner I attended a few years ago, a young politician was asked a question to which he had no answer. He said: "I don't know about that; I will go away and find out." It was Ed Miliband as it happens, and I was impressed. But the guys I was with crowed: "We got him there!" This relentless reduction of politics to point-scoring, this public-school obsession with certainty, is a turn-off. Look where it leads. Not so long ago, George W Bush said that if America "shows uncertainty and weakness in this decade, the world will drift towards tragedy. This will not happen on my watch." Apart from war, this "certainty" helped to produce the debt crisis.

It is certainty that we need to worry about, as extreme ideologies prosper in these uncertain times. Yet there have always been ways of thinking that properly refute certainty. The school of "weak thought" coming out of Italy via Gianni Vattimo follows a clear line from Nietzsche onwards that pushes against finality, and urges us to understand historical circumstance. "There are no facts, only interpretations and this too is an interpretation," Vattimo has said.

The work of Nassim Taleb also confronts us with the idea that the economic models used by the banks were based on the idea of stability. The ecology of the banking system could not predict risk properly at all (although Taleb did, actually). Then we have a genius such as Zygmunt Bauman, who has long been telling us that we live in "liquid modernity", that individuals can no longer plan careers and progress in linear, certain ways. Yes, it is like the weather: changeable.

Of course those who most understand the value of uncertainty are scientists themselves. As the delightful Jon Butterworth wrote this week, science has nothing to fear from uncertainty. The sexy little Higgs Boson particle, which may have flashed up in the data in Cern (I imagine it as a burlesque sort of particle) has meant we have listened to physicists telling us very excitedly about how much we just don't know.

This has been wonderful. The opposite of political discourse: to hear clever people talking about the limits of their own knowledge. How weighed down is public life with its emphasis on certainty. How dumbed down is belief. The big divides are not between different beliefs, but the differing degree of certitude in which those beliefs are held.

No one knows. No one has the answers. Uncertainty is where we are. It is to be embraced. Christopher Hitchens, when asked which word he had most overused, said he was shocked to find on rereading his work that it was "perhaps".

I love that. Perhaps, right now, is the best word. I'm sure of that. Perhaps.

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