Governments, bankers and economists spend a great deal of time predicting the economy. Their forecasts have a profound effect on policy. But the forecasts are often wrong, and critics argue we just don't have a credible theory of how the economy works. In 2023, 70% of economists polled predicted a US recession which never happened. In 2021, 16 of the 36 living American Nobel economists declared “there was no threat of inflation”. In Britain, the government body tasked with forecasting, the OBR, has admitted 'genuine errors' in its forecasts of inflation. Not surprisingly one of the world's leading economic research institutes concludes 'pretty much everything we could have got wrong, we got wrong.'
Should we conclude that 70 years after Keynes, and 40 years after monetarism, we lack a robust overall economic theory? Can we eradicate the impact of political beliefs and assumptions in economic forecasting? Or are forecasts from current models always going to be full of errors, and what we really need is a new overall economic theory?