The British Office for National Statistics, which although recently revamped continues to have the most user-unfriendly home page and dissemination service of all the national statistical agencies, published the latest – Retail Sales in Great Britain: July 2016 – data last week (August 18, 2016). It looked good to me. In the past week or so there has been a stream of data coming out of Britain or about Britain, which also looks good to me. What the hell is going on? The skies over Britain were meant to have fallen in by now.…Bill Mitchell – billy blog
Mayday! Mayday! The skies were meant to fall in … what happened?
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
That requires some explanation. There are two problems, one minor, and one major.
The minor one is that most economists have come to rely too much on confidence and survey data and not on real numbers. It was always quite hard to figure out why Brexit would lead to an immediate recession, except for the argument that confidence would take such a pounding that businesses wouldn’t invest and shoppers wouldn’t spend.
That turned out to be wrong — and it would have been far better to wait until the actual numbers came in before making any forecasts one way or the other.
The major problem is that most economists within the banks, fund managers and policy institutes were so personally committed to staying within the EU that they couldn’t imagine anything other than a catastrophic outcome if the U.K. left. But that surely is not acceptable. Economics is not a hard science like physics. But it should be capable of more objectivity than that.
No one expects economists to make perfect predictions. It is not that kind of science. But to get such a major event so completely wrong calls into question its relevance and effectiveness. At the very least, next time there is a major vote with global implications, we’ll know who not to listen to — the economists.