But in that case, and given the massive flaws in most central bank estimates, meaning that in general the quality of their forecasting is abysmally poor for reasons I noted in my previous piece, why do we give them so much power?
Because politicians are even worse? With worse incentives?
So he now understands that economic forecasting is inherently poor. Good. Does he still favour micro managed economies that rely on such forecasts, or is that a logical step too far?
Nonono. His forecasting is always perfectly accurate. After all, he’s predicted 137 of the last no recessions,,,
By “most” he means the dynamic duo of the BoE and the OBR. He has not ventured further afield in his rush to give of his wisdom.
Not sure you captured his original logic but here’s it from the linked post that I missed on Saturday:
Number 1
Firstly, the model is based upon microeconomic foundations. It assumes that the model of decision-making that is appropriate for individuals, households and companies is also appropriate for the state. To put this another way, the household analogy is built into it from the outset. The result is an inherent logic that the government is just another player within the economy when it is nothing of the sort. It role is not only normally the inverse of all other actors within the economy, it also sets the rule for everyone else.
There is another problem arising from the use of microeconomic foundations. Many of the crass assumptions within microeconomics, including that markets can produce optimal outcomes and that they can clear supply and demand, are implicit in DGSE modelling, quite inappropriately. You cannot build sound economic forecast on the basis of nonsense. Bernanke does not say this.
A man who evinces zero understanding of Finance or Economics has the temerity to call anything else ‘nonsense’? Of course its Murphy so the staggering lack of self-awareness is a given
Number 2:
Secondly, although it is claimed that these mathematical models can handle uncertainty, I do not think that is true. They can only handle risk, which is probabilistic. I am not convinced that they can handle uncertainty, to which probability cannot be attached, although it happens, nonetheless. This is why they were quite unable to handle the global financial crisis of 2008 and the Covid crisis. Those events simply did not exist within the range of forecast probabilities. Bernanke does not point this out.
Apparently Murphy’s model would work in all circumstances? Even Black Swans!!
Number 3
Third, these models assume that there is such a thing as equilibrium, i.e. an optimal economic outcome to which we can aspire. There is no evidence that such a state as ever been achieved. In that case, why it is appropriate to assume that this is the basis for forecasting is very hard to explain. Bernanke offers no such explanation.
Straw man number 8 million
Number 4:
Fourth, as Steve Keen has explained, relentlessly, models of this sort are based upon the assumption of a barter economy where there is no role for money. Any adaptations within the model to include the role of money are necessarily a fudge. Why the Bank is using such a model to control monetary policy is hard to explain.
Is this genuinely the claim of the MMT school – that conventional economic models don’t include money??
Number 5:
Fifth, if, instead of an equilibrium state being modelled there is instead a model that presumes that the status quo prevails (which Bernanke implies to be the case), then the model has built within it an assumption of reversion to the norm. That would be great if that norm was what everyone desired, but very clearly the norm within the economy in which we all live at present is not working. That means that the model is inherently in conflict with society – and what is happening in the real world.
I think there’d be a good deal of resistance to any of Murphy’s plans regarding a whole swathe of his policy proposals were they to be implemented in the real world. Does that make them invalid, and if not, why not?
Sixth, the most massive macroeconomic externality, in the form of climate change, is effectively ignored within this model, because that is what its microeconomic foundation necessitates. This fact pretty much undermines just about everything the Bank does.
Climate Change and DIE always the most reliable sources of grifting funds.
Thanks Christ for now the Labour party isn’t minded to mess with at least that aspect of economic policy to appease the likes of this imbecile
OT but related to a topic was well discussed a couple of days ago:
https://www.spiked-online.com/2024/04/15/how-ruth-hunt-turned-trans-into-a-religious-crusade/
Turns out Baroness Hunt of Stonewall fame is another god-bothering fanatic with illusions of divine manifestations. Quelle surprise.
To be fair he is using what appears to be the current definition of modelling and forecasting, which seems to be that anything that supports your position is accurate and anything that doesn’t is misinformation or disinformation