Sir Bob Jones: Why the dismal science so often gets it wrong

The oddity of economic forecasting is not only consistently wrong but often diametrically 100% wrong. Photo / Thinkstock

Some years ago in Britain, a chap advertised copies of The Times published on one's date of birth as a novelty gift idea. I drove to his Welsh village and bought the lot, his collection going back to 1850. Here's the point. Reading copies at random, whether 1863, 1927 or 1973, the commentary was always the same, namely Britain's buggered and all is lost.

It's no different anywhere else and it's certainly true of New Zealand's economic commentary. The current hue and cry about debt levels reminds me of the early Reagan years when American bookshops had whole sections containing dozens of books on the coming debt-driven economic collapse, just like today. Subsequent booming prosperity made these apocalyptic claims risible. Economic commentators seemingly specialise in glass half empty outlooks, doubtless sincerely but nevertheless perpetually pessimistic.

New Zealand's best-known economic doomsdayists are the articulate Rod Oram and Bernard Hickey, both serious Mintoitus sufferers. Life for them must be a living hell, always only seeing the dark side and blind to the overwhelming positives everywhere. Once Bernard and Rod would have received prefrontal lobotomies to brighten them up but those procedures became discredited. Now it's Prozac although a bottle or two of red each day would also do the trick and they would henceforth see the world in its happier, more positive side.

Certainly they can be cured, unlike the screaming skull John Minto, for whom the only salvation is a beheading. Minto owes it to himself to end the awful misery of his misanthropic existence. If he wakes to a sunny day then it's grab the megaphone and bellow about global warming. Should $50 bank notes rain down on him, out would come the megaphone to complain that they weren't $100. If he answered the door to a naked beauty queen crying, "take me John", (for plausibility assume she's drunk) he'd and bawl her out for not bringing lunch. Thank God he's not an economist or we'd all be suicidal.

Another current doomsdayists cry is intergenerational debt, this fearmongering usually accompanied by photos of babies, innocent to the terrible burden lying ahead. It's unadulterated garbage. The intergenerational debt certainly exists, only the reverse of the economist gloomsters' sky-is-falling falsehoods.

Babies born today inherit a going concern amounting to trillions of dollars of infrastructure; of roads, sewerage, dams, towns and cities, bridges, libraries, institutions and so on, in replacement cost equalling thousands of times the total central and local government debt, all paid for by past generations. So yes, there's intergenerational debt although it can never be repaid, its cost having been incurred by generations now dead.

In recent years the Economist has written about the oddity of economic forecasting not only being consistently wrong but often diametrically 100% wrong. If for example, economists agree in January that the pound will depreciate over the coming year against the dollar, the record inevitably shows the opposite happens.

Periodically the Economist reports on theories from academics as to why this should be. No one suggests the economists are stupid because they're not, but the puzzle remains. My own suspicion is that they tend towards gloom in focusing on the always present negative elements constantly arising in any complex modern economy, through failing to view these concerns in the context of the total picture, which for most folk amounts to life bowling along happily regardless of isolated problems.

When the financial crisis arose six years ago I received a call from TV One's Good Morning programme. They were planning a show on the numerous economists' claims that Auckland house prices were about to halve. They couldn't find a counterview so I stepped up to the mark. I pointed out that all prices are set by supply and demand, that there was a shortage of housing in Auckland and as Australasia's fastest growing city, this situation would compound in the coming years, which duly happened. All of that was elementary common sense, lost on the economist gloomsters.

Their innate negativity was ludicrously illustrated by the then Westpac chief economist back in the 1990s when dairy prices suddenly soared. He drew headlines by wringing his hands despairingly over the possible inflationary effects from farmers' huge income boosts. It's unbelievable.

Aside from lacking perspective, what economists consistently overlook is the extraordinary ability of people to pick themselves off the canvas when things go wrong and bounce back. Countries devastated by warfare or natural disasters quickly rebuild and are soon bubbling along again. Specific economic problems will always arise but are simply that, namely problems, and much like a leaky roof or broken arm, are soon fixed and then it's back to normality, normality being a new problem arising to be dealt with. Meanwhile life goes on and the indisputable fact is, it consistently gets better.