Economic Forecasts are Fiction


The Wall Street Journal reports:

ECB economists have cut their economic growth forecast for 2019 to 1.1% from the 1.7% they had expected in December.

The European Central Bank has decided that just three months ago it was overestimating growth by 55 percent. That is a big error for growth not years ahead but immediately ahead.

Media reports sometimes treat central bankers and other government experts as seers, but in predicting the future they seem quite useless. The ECB employs more than 2,500 presumably high-paid officials with high-tech models, and they can’t project accurately a few months ahead.

In his book examining government performance, Yale University’s Peter Schuck concluded that the government’s “endemic failure is rooted in an inescapable, structural condition: officials’ meager tools and limited understanding of the opaque, complex social world that they aim to manipulate.”

What is the upshot? If governments cannot predict our economic future, they will be hard-pressed to successfully manipulate it. Governments should focus on creating broad and neutral rules of the game, and not try to micromanagement.

For more on central planning, see here.

For more on central banking, see here.

Chris Edwards is the director of tax policy studies at the CATO Institute and editor of He is a top expert on federal and state tax and budget issues. Before joining Cato, Edwards was a senior economist on the congressional Joint Economic Committee, a manager with PricewaterhouseCoopers, and an economist with the Tax Foundation.

Used with permission. Cato Institute / CC BY-NC-SA 4.0