2 February 2024

Ihen, in 1974, the Austrian Friedrich von Hayek received the Bank of Sweden prize in economic sciences in memory of Alfred Nobel, shared with the Swede Gunnar Myrdal, the small world of economists had expressed their emotion: how a such an ideologue, marked on the extreme right, with doubtful interdisciplinary leanings, could he deserve such a distinction?

The laureate’s response matched the disdain expressed by his peers in stating that not only were economists unsure of their predictions, but their tendency to present their conclusions with the certainty of scientific language was misleading and “may have deplorable effects”.

Nearly fifty years later, Hayek’s razor-sharp judgment resonates with uncanny relevance. Since the Covid-19 pandemic, the crystal ball of forecasters has clouded to caricature. Quarter after quarter, expectations are systematically contradicted. After darkening the post-lockdown picture, they clearly underestimated the inflationary risk. As for this recession which was to hit in 2023 a Europe weakened by the war on its doorstep, it will have been nothing but a mirage. As the American economist Ezra Solomon once quipped, “the only function of economic forecasts is to make astrology look respectable”.

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The charge may seem easy, because it is much more comfortable to decipher the real once the facts have occurred. Especially since the recent period has been particularly complex to grasp. A virus with unpredictable mutations, a disorganization of supply chains like never before in the global economy, support on an unprecedented scale decided in haste by governments, a war that no one believed in: everything competed so that, under the effect of these successive shocks, the calculation models are shattered and the credibility of economists with it.

Error is the rule

But the problem is not only related to exceptional circumstances. In 2018, an International Monetary Fund (IMF) study, by Prakash Loungani, Zidong An and Joao Tovar Jalles, sifted through sixty-three countries’ growth forecasts from 1992 to 2014 and found that of the sixty recessions identified, only two had been anticipated by economists.

In 2015, in an all-too-rare exercise in introspection, the Organization for Economic Co-operation and Development had the courage to come back to its mistakes in forecasting growth during and after the 2008 financial crisis. This work had made it possible to identify an overestimate located in a range of 0.9 to 1.4 points, a considerable difference in a context of an increase in gross domestic product of around 1%. The same is true for the Japanese government’s forecasts which, since 2000, have systematically been overly optimistic. More recently, the IMF also indulged in a mea culpa by trying to understand why the institution had incorrectly anticipated the inflationary phenomenon of recent months.

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