It's a little known fact that I trained as an economist at Sussex University. The economics department in those days of peak Thatcherism were all zealots of econometrics which, in layman's terms, means bastard sized equations to estimate outcomes like aggregate demand or inflation. We'd all go along to our tutorials quaking in our buckled boots fearing we'd have to go to the blackboard and write one of these algebraic monsters in front of our peers, or worse, our tutor. Our tutor, a man of Delphic persuasion would puff on his pipe and raise a quizzical eyebrow at our pathetic efforts to prove by mathematical formulas why the demand curve slopes downwards to the right and the supply curve the reverse.
"Are you sure?" he'd say as I hadn't a clue whether I was proving an incomes augmented philips curve or the half life of a hangover.
Anyway, I raise this nostalgic ghost from the graveyard of dead Tim stories to illustrate that I have some background in economics. As I've grown older - and wiser - my scepticism towards the dismal science has grown.*
For part of my life I used to dream up models to enable a global corporation to justify multi million dollar investments. You know, if we spend X amount on hiring extra sales-people, they will produce Y amount of extra revenue in Z amount of time. Behind these three outcomes would be legions of assumptions. Some pretty robust - seasonality perhaps, some grounded in observable fact from incomplete data - the time historically it takes from a contract being signed to revenue coming in perhaps and some, absolute guesses - maybe how much a new salesforce will sell after six months or customer attrition rates. I just plugged in numbers, hit the return key and answers would spew forth! Scientific, yeah?
Now could I control the state of the economy? No. Could I control the exchange rate? Of course not. What about simple stuff like hiring the right candidates? No. Would they all be ready to go on a certain date? Never. How many would stay after the first month? Less than 100%. How many would we fire for being shit after six months? Twenty five percent? Gawd knows. All this had to be factored in with - you guessed it - assumptions.
Was I right? Of course not. Only God knows the future and my deity muscles are a bit rusty. Us mortals merely adjust as we go along based on the observable data you have at the time. Everyone who works in models and predictions knows this.
So, by training and by experience, I have some idea about models, about how models work and about how much humility anyone who peddles versions of an unknowable future should display. The future is inscrutable. The only facts are historical. And they can be argued.
So, George Osborne's Treasury released the findings of a model this week which stated, in broad terms, that in 14 years time, if we stayed in the EU, each household in the UK would be about £4500 a year better off than if we left the EU.
What does that mean? Well it means that across the millions of decisions made by companies and individuals, and not knowing what technology will throw up, not having a clue about the state of the economy in 12 months let alone 14 years, the Treasury built two scenarios which said that Scenario 1 (Remain) will be better than Scenario 2 (Leave) in more than a decade.
The hubris would laughable if the useful idiots of the press didn't repeat the model's findings as gospel. Either the people who repeat this guff are stupid or knowingly pushing an agenda. Either way, it stinks. Not everyone has my experience of how these numbers are created and might therefore believe what they hear as a fact, not as opinion, for opinion it most undoubtably is.
We all know the truism garbage in garbage out, of course. And that is perhaps the greatest truism about models one can repeat for it is ridiculously true. But what about cognitive bias where we seek out the answers we want and discard those we don't. Now imagine someone sat in the Treasury inputting literally thousands of variables and assumptions. They know the answer their political masters want from the model. I don't believe I'm being paranoid to state that I suspect all the assumptions go in one way, and not the other.
It's a human instinct but don't for a minute call it science.
There have been many claims in this Brexit referendum. Most are totally shameless and self-serving but I think that the Treasury report this week stands out as the most shocking in a crowded field. It's not as though they have a great record on predictions. It's too wearisome to go through them all but weren't we supposed to have eliminated the deficit by now, George. What we haven't? But you predicted that just six years ago. You mean predictions can be wrong? Really? I'm shocked. Shocked, I say!
The economic term for this is 'bollocks'.
Next week we'll go through mal-investment and the Austrian School.