But, what, you mean macroeconomics is not accurate?
A useful little example here:
OBR error leaves Reeves £18bn short of room to borrow
Mistake in official borrowing forecasts risks spooking traders
Our word. You mean that macroeconomic numbers are not very accurate?
A mistake in the UK’s official financial forecasts has left Rachel Reeves £18bn short of headroom to borrow in her ambitious tax and spending plan.
The Office for Budget Responsibility (OBR) was this week forced to “restate” its March estimates for public sector net financial liabilities (PSNFL), the UK’s new measure of public debt.
The figure shows Reeves has £44bn of room to borrow – around £18bn less, Bloomberg reported, than its initial estimate of £62bn in March.
Well, yes, that is what this means - macroeconomic estimates are not very accurate. Now in one sense this isn’t all that important. The credits and debits on the PSNFL are both vast numbers, trillions each. The balance between them being out by £18 billion, well, under 1%. Pretty good for government work actually.
But in another sense really very important indeed. Because this under 1% is the sort of number that people are trying to use to manage that macroeconomy. And if your numbers are inaccurate by 1% then you cannot manage to that under 1% level. For the information you’re using to manage is erroneous by greater than the margin you’re trying to manage.
This is why that detailed demand management of the Haute Keynesianism years didn’t work. The information flowing into the decision making system just wasn’t accurate enough for the decisions people were trying to make.
Of course this point has been made more generally, about all economic numbers and management. They gave Freddie Hayek the Nobel for pointing it out after all. The centre simply never will have the knowledge to be able to do things in detail. Therefore don’t try to do things in detail. Get the basics - incentives, legal rights, civil liberties - right and leave be to allow society to grow.
Yes, yes, this is just the one example of error, already cleared up. But our opposition to detailed macroeconomic management - to detailed economic management - is at least in part driven by our insistence that all economic numbers are like this. Therefore there’s no system of processing that information centrally, through politics or Rolls Royce minds, that can possibly do that management job. So, don;t do it because it’s not possible to do.
Tim Worstall