The Bank of England’s chief economist, Huw Pill, made a startling admission last week, says William Hague in The Times. He said, in essence, that the economic models we’ve been using to forecast inflation are no longer working. It’s because they’re based on the past 30 years, when prices haven’t risen much at all, and thus cannot cope with big economic shocks like Covid and the Ukraine war. What’s more, it’s a “fair bet” that inflation is here to stay – so those economic models will probably never work again. Tempting as it is to gloat over the “discomfort of economists”, the truth is that this upheaval is happening “in almost every field of expertise”.
In politics, it’s no longer the case that doing an “extraordinarily bad job” makes you unfit for office. Just ask Donald Trump, who is way ahead of his rivals for the Republican presidential nomination, or the newly re-elected President Erdogan in Turkey. In finance, “investors are also scratching their heads”. Last month, I heard one of the world’s most successful fund managers admit that the charts and models he previously used “gave almost no clue” as to what to do with money now. (His one firm prediction, that the US dollar would weaken, has so far proved dead wrong.) Same with climate, with migration, with a business world about to be utterly transformed by AI. That, as much anything, will be one of the biggest questions of the coming years and decades: “What do we do if we can’t predict the future?”