I have been puzzling over why the Office for Budget Responsibility, which was only established to give prudent and honest advice about what is happening in our economy, has failed so resolutely to either predict or interpret the current economic position. It hasn't helped that the man chosen to head up the organisation was qualified in communications more than in economic analysis, but perhaps there are deeper answers to the questions about why it keeps predicting more growth than we are likely to achieve.
If you were on the edge of a paradigm shift, would you honestly be able to look across the gulf and believe what you were seeing on the other side? Or, rephrasing that question with relevance to the purpose of this blog, would you be able to believe that growth will never return and that your job as an economist should be not predicting its returning, or even trying to bring about its return, but rather encouraging the evolution of the economy towards a structure that does not rely on growth?
Let's spend a while looking at the figures. Osborne's disastrous revisions to his growth figures, which lead him to conclude that we must face at least another six years of grinding austerity, are based on more OBR predictions. The OBR now suggests that the 0.8% growth they predicted just eight months ago has been transformed into 0.1% of contraction. Next year's growth, they suggest, while less than their March prediction of 2%, will still be a determinedly positive 1.2%. The fantastical nature of these predictions arises from the fact that the past always looks worse than in OBR-land, but the future continues to look rosier. This suggests a failure of judgement and the need for a reality check. The OBR economists appear to be psychologically incapable of responding to a world beyond growth: being incapable of imaging such a world they gaily predict it away.
What is the view from Euroland? Even the German economy, the final functional growth engine, is beginning to sputter. In spite of our view of Germans as sober and rational, the disease of fantastical prediction appears to be spreading their way. The Bundesbank is making even more rapid adjustments to its predictions, suggesting the German economy will grow by just 0.4% next year compared with its June forecast of 1.6%. When a key economic variable can be reduced so drastically in just five months you realise that you are dealing with psychological rather than statistical error.