On a visit to the London School of Economics last November, the Queen asked why no one saw the financial crisis coming. For if people with enough authority and influence had foreseen it, some preventive action would have been taken and either the crisis would not have occurred, or it would at least have taken a different form.
The British Academy convened in June a forum of “experts from business, the City, its regulators, academia and government” to debate an answer to the question. The result was a letter to Her Majesty by Professors Tim Besley and Peter Hennessy purportedly summarising the views of the participants. Although I was listed as an attendee, I have to dissociate myself from the views expressed. The letter starts off by saying that “many people did foresee the crisis” but no one foresaw the form it would take and its timing, onset and ferocity. It ended by expressing the hope that the various establishment bodies represented “might develop a new shared, horizon-scanning capability so that you never need to ask that question again”. Some hope. I am reminded of the sinking of the Titanic in 1912 with the loss of 1,500 lives. The ship had been considered unsinkable. In contemporary discussion, economists have been put in the role of the Titanic's designers.
The popular view of economists is that they exist to make forecasts and do so badly. One of the more basic rules of the subject is that where a demand exists some people will come forward to supply it. The economists who have done so for forecasts have accordingly fallen flat on their faces. Their usual response is that most of the time they get it reasonably right. But what matters is whether they can identify significant turning points and systemic failures in good time. They cannot. This does not mean the subject is valueless. Evolutionary biologists cannot predict the future of the human race, even though some novelists, such as H.G. Wells, have tried.