By GILES PARKINSON*
We should be relieved that we do not have to rely on the accuracy of economists predictions to get through our lives each day. If we did, we would all be hungry and homeless.
Economists do, however, hold great sway over the conduct of politics and financial markets' shrill predictions about the health of the economy.
John Maynard Keynes, possibly talking about himself, wrote that the ideas of economists were more powerful than was understood, particularly in their ability to influence politicians.
Madmen in authority, who heard voices in the air, were distilling their frenzy from some academic scribbler of a few years back, he wrote in 1947.
And they have been distrusted for a lot longer than that. No real English gentleman, in his secret soul, was ever sorry for the death of a political economist, wrote Walter Bagehot, himself an economist, in 1858.
They, of course, were talking about thinkers who worried about the structure of the economy.
In the modern day of instant reactions and opinions, financial markets live and breathe the words of economists trained to have a ready answer to every piece of data. They help create the friction that makes markets move.
Their faces appear on our screens every day, distilling the tea-leaves of unemployment data or the like.
Few professional economists would be remembered beyond the next trading session, but they wield enormous influence.
As a rule, they hunt in packs. There is safety in numbers and numbers are what they deal in. They work on consensus, with a few taking wider predictions in case of any rogue data.
This new economy, however, has got them stumped. Over the past six months, Australia's economists have rarely been able to agree. The economy is either in danger of overheating or underperforming, interest rates will have to rise by up to 150 basis points or must be relaxed now.
This week, they all got it wrong, and by the economists' equivalent of a country mile.
Asked to predict the strength of the economy in the March quarter, 24 of the country's finest digested the financial data that has appeared over recent months and pronounced it to be slowing to between 3 and 3.6 per cent.
The quarterly growth, they insisted, could not possibly be more than 0.6 per cent, and was more likely to be 0.3 per cent.
The Australian Bureau of Statistics data, released last week, showed the economy had grown by 1.1 per cent in the quarter and 4.3 per cent over the year.
In sporting jargon, one was left wondering whether the economists had been watching the same match.
Surprisingly strong was the instant and considered response of the gang of 24 surveyed earlier in the week, although some said the data had confirmed the economy had not slowed as much as had been thought.
The economists were thrown by unexpectedly strong contributions from agriculture and oil production (proving that the old economy still exists); by pessimistic surveys of business optimism (there is none and it is all the fault of the GST); and the gradual but accelerating shift in consumption from goods to services (people are not eating so much and they do not have a lot of furniture, but they are talking an awful lot on the mobile).
The economists felt pretty bad about their wild predictions, but only for a few minutes.
Surprises fuel the creative tensions of the markets, and there was much money to be made in bond futures and swings in the currencies as the focus again returned to the next likely rise in interest rates - although no one is quite sure how this would curb the use of mobile phones.
Of course, the economists blamed the tea-leaves for their momentary embarrassment, saying the partial indicators released by the bureau had been unreliable, and it was too slow in releasing the details of the national accounts.
Most Western economies have had their March quarter GDP data out for more than a month.
Still, as recently as a few weeks ago, some economists predicted the March and June quarters could show negative growth. March has come in at a positive 1.1 per cent and June is now being tipped to be even stronger.
Someone must have changed the tea-leaves.
* Giles Parkinson is deputy editor of the Australian Financial Review.
Red faces for economists
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