Expert view: Soothsayers should consider the battle of Seattle

The millennium provides a ready excuse for looking to the distant future. But for economic forecasters, 1,000 years is asking a bit much. They have good reason to be humble about their abilities, and so usually stick to predicting only a year or two ahead. Not surprisingly, asking them to produce forecasts for 10 years or more ahead often yields little more than a glorified extrapolation of long-run trends. About the only thing we can be confident about is that life will be much more exciting than that.

The sad truth is that the future is unpredictable. Yet because economists have succeeded in getting it wrong in so many interesting if not always elegant ways, people keep asking them to do more forecasts. More seriously, another truism is that forecasting is unavoidable. Most spending decisions and all investments and plans rely on views of the future. Economists, in trying to beat simple guesswork, typically base their forecasts on past behaviour. They build "models" based on previous relationships, such as the tendency for people to spend more when their incomes rise or for prices to rise when wages go up.

Inevitably, like all relationships involving people, these economic relationships can change, or even break down. So economists have to make judgements about how they will change in the future: and that is where their pseudo- science gives way to art. And the further ahead the forecast, the more artistic it gets.

It turns out that economists making long-term forecasts are a conservative bunch who stick to the beguiling safety of long-term trends. The year- to-year swings of the real economy are replaced by boring straight lines of long-run averages.

Yet economists equally know it is the natural cyclical volatility of the economy that sparks off many of the structural or policy changes that can have long-run effects. Just ask the British manufacturers wiped out in the recession of the early 1980s or the internet entrepreneurs made rich in the current boom in the US. Indeed, the latter are a reminder of the recurring risk that people will assume the boom will never end, get carried away, over-invest and so inevitably bring on the next downturn.

Remarkably, some economists caught up in the latest bout of American- inspired euphoria argue that we are on the brink of a "long boom" that will see not just strong but stable economic growth. Strong growth? Perhaps. But stable? Don't bet on it.

Nevertheless, it's hard not to be excited by the progress of the new technologies and their potential to transform the economy. Although it is a vision that is still only dimly appreciated, it has certainly electrified the world's stock markets over the past few months. The internet has brought us a world where a couple of students in a back room can dream up a business which threatens a multinational company. Forecasting in such a world is the economists' answer to modern art. The supposedly well-established relationships built into their forecasting models are likely to be blown apart.

Now indulge me on my latest picture. In fact, let me paint you two. In the optimistic picture, the new technologies hold the potential to add a new dimension to global competition. In this hyper-competitive world, inflation will be contained and producers must improve productivity if they are to prosper. The rapid non-inflationary growth seen in the US over the past four years might then provide a foretaste of the world economy in the next decade.

In the gloomy picture, the potential of the new technologies fails to be fulfilled as social and political resistance derails the trend towards free markets. The market liberalisation of the last decade has created losers as well as winners. Indeed, even some of the winners now allow themselves the luxury of questioning their affluence. The violent protests outside last week's world trade talks in Seattle hint at troubles ahead.

In principle, the winners in these global structural changes should be doing well enough to compensate the losers. However, redistributive taxation is off the political agenda, and the "trickle down" of prosperity requires sustained economic growth. But the economic cycle cannot just be abolished, and another downturn lies in wait.

So, while forecasters generally agree that a global economic recession is at least a couple of years away, the eventuality strengthens resistance to market liberalisation and globalisation. The "battle of Seattle" could turn be the first skirmish in a new economic war.

Of course, all of this is far too exciting to be incorporated in a long- term economic forecast. But then life's like that.

n Mark Cliffe is the chief economist at ING Barings.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific