Forecasting trouble

SAMUEL GOLDWYN is one of several people believed to have said, “never make forecasts, especially about the future”. Daniel Altman, an American academic economist who once worked for The Economist, blithely ignores this advice in his new book. Indeed, he offers no fewer than 12 big predictions for what he calls the “deep factors” that will most affect the future of the world economy.

This is a bold exercise and, albeit fitfully, an interesting one. The author rightly complains that too much forecasting, not just in economics, is short-termist, looking a year or two ahead at most. It also tends to be linear: too often forecasters merely project forward recent trends. It is also clear that people tend to overestimate the immediate impact of new developments but underestimate their longer-term effects.

Mr Altman writes with some verve, yet he makes only a partially convincing case in support of his predictions. He is best on purely economic ones. Thus he is surely right to argue that China’s seemingly inexorable growth will slow, though it is less clear that China may, like Japan before it, then slip back. He is also persuasive in maintaining that the rich world’s policies on immigration (taking in the brightest and best) and the environment (transferring polluting industries abroad) will damage the poorest countries.

But he is on weaker ground in many of his broader forecasts. The suggestion that the future, like the past, will belong to the middleman may suit his view of America as the world’s salesman, but it sits ill with many other signs of disintermediation. The argument that a motley group of “lifestyle hubs”, including Bulgaria and even Tunisia of all places, will take over from the likes of London, New York and Paris as the favoured bases for the rich and successful seems fanciful.

Mr Altman is also cavalier in forecasting the demise of several of the world’s international institutions. In truth, it takes a lot to overcome natural inertia and kill any organisation. Predictions that the European Union will disintegrate economically and that the World Trade Organisation will also collapse give too little weight to the value placed on these bodies by their present and prospective members. Several countries in eastern and south-eastern Europe are eager to join the EU and even the euro; and Russia is not the only country aspiring to get into the WTO. How effective these organisations will be may be debatable, but it seems decidedly premature to write their obituaries.

Overall, the tone of Mr Altman’s book is strikingly gloomy about the future, except oddly for that of his own country. In the longer-term perspective that he favours, the gloom seems excessive. In a 1930 essay on “Economic Possibilities for our Grandchildren”, John Maynard Keynes mused on a future 100 years thence, when much of humanity would have solved the perpetual economic problem of subsistence. At least in rich countries, that future is likely to be realised, as Keynes predicted, by about 2030. Keynes’s vision of a cultural and intellectual paradise may have been naive. But Mr Altman would do well, perhaps in a second edition, to explore not just potential problems but also the effects of undreamed-of levels of prosperity, at least in Europe and America.

Source: www.economist.com