To which the response is well, isn't that the point? Forecasts are subject to considerable error, due to the tendency for events to screw around with one's cherished assumptions. A plane flies into a building, an investment bank goes belly up, a country defaults, a government changes etc;
So why does the media in Australia continue to give such prominence to economic forecasts that are at best an educated guess, at worst a shallow marketing opportunity? And why do journalists - who pride themselves on being primo bullshit detectors - never apply any scrutiny to the accuracy record of the forecasters whose every utterance they treat as if written on tablets of stone?
Access Economics is one such body whose regular prognostications, helpfully dropped into the media's lap on slow news day Sundays, ritually enjoy a free plug (see Crikey) in the nation's newspapers and broadcast outlets with no attention ever paid to how much it gets wrong. Dear Aunty ABC felt Access was such an unbiased source that it didn't feel it necessary to attribute its latest budget deficit claims to the agency in the opening paragraph of its news story: "Treasurer Wayne Swan is being told to abandon his plan for a budget surplus in the next financial year." There's that passive voice again, but that's another story.
Anyway, this would be the same Access Economics which made these wonderful forecasts, all lamely parroted by an Australian media in recent years:
- FORECAST: "Australia risks falling into a recession as the Asian economic impact bites, forecaster Access Economics has warned." SMH 10/8/1998
- WHAT HAPPENED: Australia sailed on through the Asian recession as the $A acted as a shock absorber.
- FORECAST: Leading economic forecaster Access warns bird flu pandemic could crush Australian economy. 1/11/2005 West Australian
- WHAT HAPPENED: Well, it COULD if there was one. There wasn't.
- FORECAST: Access Economics predicts housing boom will end in tears. Daily Tele 19/9/2002
- WHAT HAPPENED: The housing market pulled back slightly from late 2003 and then powered ahead again. Still waiting for the bust eight years later.
- FORECAST: A housing slump will cancel the rebound from the drought, causing flat growth over the next two years, says Access. Daily Telegraph 20/1/2003
- WHAT HAPPENED: In the subsequent two years, the economy grew at or above trend.
- FORECAST: A sharp and lengthy slowdown is under way in consumer spending and will push up unemployment, Access warns. The Age 4/4/2005
- WHAT HAPPENED: The unemployment rate continued to edge lower and within three years of the forecast had reached historic lows of 4.0 per cent.
- FORECAST: The investment surge that has helped drive the WA economy could be about to turn, Access Economics has warned. West Australian 7/5/2007
- WHAT HAPPENED: On the contrary, record prices for iron ore and coal continued to drive investment in mining, which the RBA now says will hit record levels of 7 per cent of GDP
- FORECAST: Extremely tough Budget needed to avoid further rate rises this year, Access warns. Herald Sun 21/4/2008
- WHAT HAPPENED: The global financial crisis came along, triggered four rate cuts by the end of 2008
- FORECAST:Inflation time bomb ticking, warns Access 9/5/2008
- WHAT HAPPENED: Within 18 months of that forecast, the RBA's underlying inflation measures sank from around 4% to the bottom of its 2-3% target ban and the cash rate fell from 7.25% to 3.0%.
- FORECAST: 'Close to a million Australians face unemployment as the economy plunges into recession, Access warns.' Herald Sun 28/4/2009
- WHAT HAPPENED: Australia was virtually alone in avoiding a recession through the GFC. Unemployment topped out at 5.9% (nearly half the level of the US) and then fell back again
Back in my newspaper days, I recall an editorial meeting at which it was suggested that a shame file be compiled of economic forecasters and published once or twice a year. Great idea, you might say, but the argument went that if we started shaming bad forecasters no-one would ever talk to us again. So we went back to breathlessly reporting each and every new forecast as if all the previous and usually contrary ones hadn't existed.
Of course, making forecasts for a living is an impossible game. If you step outside of consensus and make a big call that turns out to be right, you're an instant legend. But if you make a big call and get it badly wrong, you're toast. This is why economists tend to loiter around consensus. The negative consequences of being bold and inaccurate exceed the positive consequences of being bold and accurate. And there are so many ways in which your forecast can go awry.
Yet the media continues to peddle the myth that there are people out there with a reliable crystal ball. And that somehow they can see the future better than anyone else. The truth is all you can really say is that economists work off assumptions. If this happens and that happens, then this may happen. But the more moving parts there are, the more they have to revisit their projections.
As to why the media relies so much on thumb-sucking forecasts for front page fodder, there are a couple of theories. Firstly, forecasts are easy. No phone calls or research are required. One just cuts....and pastes. And helpful people like Access or BIS supply all sorts of ready-to-publish tables and graphics that absolve hard-pressed, underpaid journalists from doing any actual work. Secondly, it's cheap and it causes an easy splash on a quiet news day. Finally, with yesterday's news already known by the time newspapers publish, we can't talk about the past anymore. So let's talk about the future. It fills a hole in the 24-hour news cycle and gives the punters something to chatter about until the next instant sensation comes along.