Dismally bad August 19, 2008 at 7:55 am

Larry Elliott in the Guardian has an article encouraging the Bank of England to cut rates. Larry is harsh with the Bank, accusing them of being asleep at the wheel, and he presents as evidence the Bank’s 2007 CPI prediction:

CPI projection 2007

This shows a zero chance of inflation reaching 5% in 2008. If we now turn to the latest report, we find:

CPI projection 2008

In other words, current CPI over 5% and likely to stay there for six months. For me this is not proof of the Bank’s guilt: this is just proof of how utterly unscientific economics is. After all, the Bank of England staff are neither ignorant nor lazy. They will have applied reasonable econometric tools in reasonable ways to get the first chart. The fact that reality turned out not just different from their prediction but completely outside the error bars simply shows that far too often when tested against reality, economics fails dismally.

Update. See here for a comprehensive account of the failure of economics. Or at least its failure to be funny.

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