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The problem with forecasts

By Stephen Nickell   March 2010

Since the financial crisis started, economists have been lambasted for failing to predict it. But foretelling the future is always tricky, as any climate scientist will tell you. Foretelling the future of the economy is especially tricky because the very act of publishing forecasts will, if they are believed, affect the future path of the economy. At least the weather doesn’t respond to weather forecasts.

Suppose that in early 2007 economists had predicted that 2008 was going to be the year of financial collapse. Assuming that they were believed, people would have become a lot more cautious, and wary investors…

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