These are uncertain times and it seems that anyone brave enough to forecast our immediate future is simply guessing. The treasury’s economists provide an example of this. In December 2007 the treasury was predicting an unemployment rate in 2010 of 3.9%. A year later its forecast of the unemployment rate had risen to 6.4% with an admission that it could be as high as 7.2%. This illustrates how difficult it is to assess the financial crisis that now grips the world.
In human terms these differences in the rate of unemployment are significant. The difference between a rate of 3.9% and 7.2% is the prospect that a further 75,000 people will be out of work by the end of this year.
But these differences are important in policy terms as well. If policy advisors can miss something as major as the worst financial crisis in 70 years, most likely they are missing other important challenges looming on our horizons. For example what is being done about a growing shortage of affordable housing in Auckland and what will be done to address the growing social stress caused by rising unemployment and falling household incomes.
While the short-sightedness of economic forecasters can be attributed to human frailty, the failure to learn from our mistakes is foolishness, and this is the danger here.