Her Majesty raised the issue herself. Why hadn’t the world’s economists predicted the global financial crisis? Had she asked me, my answer would have been that such things are beyond the abilities of anyone, and if someone tells you different, they are only kidding themselves. And I say this as the AFR Forecaster of the Year in 1988, which I received for being the only economist in Australia to say that Australia would, under virtually no circumstances I could think of, have a recession that year. Everyone else thought the probability was high, so I won by default.
The sad part is that economics has now in many ways been reduced to forecasting a narrow range of published national statistics, as if that were the true issue. What economists should be doing instead is working out the best way to achieve community goals, by putting institutional structures in place that create the wealth we can all then partake of, most helpfully by participating in the wealth creation process.
Why this has come to mind are the latest ructions in the market for oil, that no one – NO ONE – could have forecast a year or so ago. And certainly no one did. Here is the article that has brought this to mind: Bank of America sees $50 oil as Opec dies.
The Opec oil cartel no longer exists in any meaningful sense and crude prices will slump to $50 a barrel over coming months as market forces shake out the weakest producers, Bank of America has warned.
Revolutionary changes sweeping the world’s energy industry will drive down the price of liquefied natural gas (LNG), creating a “multi-year” glut and a mucher cheaper source of gas for Europe.
Francisco Blanch, the bank’s commodity chief, said Opec is “effectively dissolved” after it failed to stabilize prices at its last meeting. “The consequences are profound and long-lasting,“ he said.
The free market will now set the global cost of oil, leading to a new era of wild price swings and disorderly trading that benefits only the Mid-East petro-states with deepest pockets such as Saudi Arabia. If so, the weaker peripheral members such as Venezuela and Nigeria are being thrown to the wolves.
Of course, these are forecasts made in December 2014. And if you don’t like this one, come back tomorrow and I will give you another.