Maeve Dineen: Warning -- economic predictions can damage your sanity
Published 25/10/2010 | 05:00
Fool me once, shame on you; fool me twice, shame on me. Readers can be forgiven for being confused by the seemingly conflicting headlines in the media these days.
In recent weeks, we've had front-page stories proclaiming that the economy has turned a corner and that we are headed for a decade of recession. Can they both be true?
The simple answer is yes. We are reporting what others say, not what will happen. We are clearly not endorsing the views.
In the two headlines quoted above there can be little doubt that the views deserved coverage and serious discussion. The story about the economy turning a corner was largely prompted by comments from the head of S&P -- arguably the world's most important rating agency and an organisation which sometimes has the power to make its forecasts come true simply by publishing them.
By the same token, the bad news story forecasting a decade in the wilderness came from the Economic and Social Research Institute which is the most influential think-tank in the State and one of the few known to consistently influence policymakers' decisions.
There are, however, many other forecasts from banks; stockbrokers; charities; various companies; auctioneers and business lobby groups that do not fall into this category and who have rightly received stiff criticism for being widely off the mark with their economic forecasts.
No one is suggesting that those who were predicting growth of 3pc or 4pc this summer when the economy was contracting did so deliberately. But businesses across the country used these growth figures when they were planning their budgets for next year and are now back at the drawing board.
Many of the economic forecasts appear to be influenced by faulty models, which are not sophisticated enough to pick up what is happening both here and overseas.
Some economists and stockbrokers are also probably influenced by an innate optimism -- a wonderful trait in a human being but not always conducive to rigorous analysis
These are the charitable explanations for the predictions of soft landings, low growth and quick rebounds which have flowed from the various brokerages as well as some of the State's most august institutions including the Department of Finance and the Central Bank.
There was a time when the forecasts made by the last two organisations demanded respect. But having moved the goal posts so many times -- is this still the case? The forecasts are now hampered by so many absurd assumptions and so many political considerations that they no longer carry the weight they once did.
Earlier this year, Finance Minister Brian Lenihan and Taoiseach Brian Cowen were bandying around different growth figures -- figures that also differed from the official figures published in the Budget; something that would have caused a scandal in many countries. So weary and wary have we become in this country that it hardly raised an eyebrow.
Obviously we will continue to report on the prognostications of the State's most important institutions and some of the independent analysts and stockbrokers, but we will perhaps be a little bit more picky than we have been.
Similarly, we will continue to report on the predictions of our political masters -- but readers need to remember that they all come with a health warning.