Reading the tea leaves

Robert Chote, head of the UK’s Office for Budget Responsibility (OBR), says “forecasts are always wrong” because the future is highly uncertain. But the OBR has a job to do – to forecast the future – and a poor set of tools at its disposal. Reading tea leaves is a nonstarter, obviously, so the next best thing is an abuse of mathematics, or economic modelling. In this method a calculation is performed using a chosen set of assumptions and equations which, it is hoped, might represent the current and future state of the economy. This has the benefit over the tea-leaf method of seeming scientific because its “mathiness” as one economist calls it (Paul Romer at https://paulromer.net/mathiness/) reflects the achievements of scientific method. Unfortunately there is never enough information available to economists to mimic the real world, plus the power of whoever gets to choose the assumptions is immense (see also Economic Forecasts are always Wrong).

The Government is obliged to accept the forecasts of the OBR because it was set up by the Government to be independent. The “dismal science” (economics) has once again predicted doom because the OBR was only able to assume what it knows we could lose in the Brexit process and not what we might gain in concessions or from freedom to strike new relationships, some of which could be ready to go on the date of departure. Many countries have shown their eagerness to enter trade deals with the UK and templates exist which might help (EFTA/EEA, TPP, NAFTA, …).

The UK Chancellor, Philip Hammond (a dour, convinced Remainer) has set the tone for what could be a self-fulfilling outlook. If the World takes us at his word why should they have confidence in our future? Thankfully the World has been sceptical, so far.

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