KEY POINTS:
LONDON - There is no such thing as "failure" under modern political management. There is merely "challenge".
For economists there is "shock". If something goes wrong with the forecasts, it is attributable to a "shock" to the system.
In the days before economic forecasts, World War I was
a shock to the economic system, marking the collapse of the late 19th/early 20th century adventure with economic globalisation, followed by Weimar inflation, slump and protectionism.
Wars provoke the biggest shocks.
The Korean War of 1950-53 provided an inflationary shock to the world economy (via higher commodity prices) and the Vietnam War involved inflationary financing in the 1960s, which contributed to a devaluation of the dollar and the collapse in 1971 of the Bretton Woods fixed exchange rate system.
The last straw was the Yom Kippur War of autumn 1973, which prompted a quintupling of the price of oil - the first "oil shock".
World War II had, of course, been the shock that induced the German and French economies to unite via the setting up of the European Economic Community; and distrust of the US and its "benign neglect" of the dollar was a key factor prompting leaders to set up the European Monetary System - precursor of the euro - in 1979.
There was a second oil shock in 1979-80, directly connected with the fall of the Shah and the rise of Ayatollah Khomeini in Iran.
Then there were the shocks of German unification in 1990 and the collapse of the Soviet Union.
All these "shocks" were related one way or another to wars or to revolutions. All of them affected the economic thinking of the time, and caused substantial alterations to prevailing economic assumptions.
Which brings us to the next possible shock to the system.
Anybody who has listened recently to Tony Blair failing to apologise for his role in going to war will have realised that the British Prime Minister is being characteristically equivocal about the UK's response to any US plans for war with Iran.
Yet anyone who has been following the US press will know that the prospect of a "strike" against Iran is now being discussed, and the insane Bush-Cheney axis, fresh from its "triumph" in Iraq, is, depending on the source, either seriously contemplating such a strike or not ruling it out.
The only rational explanation for the Cheney approach to Iraq was that it was largely about safeguarding the supply of oil.
So far, for all the chaos, and the perverse impact on oil production within Iraq itself, Middle East oil has continued to flow and the price is well below last year's peak.
Saudi Arabia, itself concerned about the way the Iraq venture has strengthened the hand of Iran, has counteracted the hawks in Opec who want to push prices higher.
Quite apart from the geopolitical disaster that most experts on the Middle East predict should the US attack Iran a strong body of opinion has it that the impact on the oil price of such a conflagration would be devastating.
Economic forecasters cannot predict, or assume, such events. But it is noteworthy that the main impact on inflation in the recent past has been the gyrations of the price of energy, and the main reason the Bank of England's monetary policy committee (MPC) and other central banks are forecasting a decline in inflation later this year lies with the lagged impact of the recent decline in energy prices.
The same goes for the US Federal Reserve, which is being credited with having achieved a "soft landing" for the US economy.
Some time ago an MPC member took me aside and complained at my use of the term "politburo" to describe the seemingly block vote of the internal bank members of the MPC. But more recently there have been months when the politburo itself has been split, at least over the timing of changes in interest rates.
The latest news is that the only hawks on the MPC last time round were two "external" members. But one thing they are all agreed on is that the big factor, both upwards and downwards, has been the price of energy.
- OBSERVER
