About Experts

One of the interesting things is how inexpert the experts have been throughout this recession. I don't remember how good or bad they were in 90 and 81, but this time they're truly appalling in two ways - they can't predict what's going to happen, and they can't explain what has happened. Why is this?

I think there are 3 main reasons:

1. They rely too much on metrics that look back, not forward. Indicators like unemployment and house prices can only tell you how painful the car crash is, not why you left the road.
2. They can't bring themselves to imagine what the evidence suggests. If it's too horrible to contemplate, then they imagine a more benign outcome, whether or not that squares with what they're seeing
3. They're all in the wrong job - or rather, they're all in a job, and a very well-paid job to boot. They mostly live in the south-east and work in and around London; they're all upper to middle class; they're all well off financially. Few of them know or mix with people in ordinary, lower rank jobs. They don't know how families who live on average wages do live. It's all - literally - beyond them.

Take these together, and you couldn't get a bunch of people less qualified to comment and explain if you tried.

To see why a recession was inevitable, you only had to look at 2 metrics - the rise in inflation in food and utilities throughout 2006 - 7; and the consequent fall in discretionary spending power for most people. After over a decade of zero inflation, food suddenly started going up at an annual rate of around 6-7%. Gas and electricity started going up rapidly. Now, most people I know eat food and burn fuel. When the costs of these go up, it leaves less to spend on other things. Not a problem if it's only a couple of percent - but discretionary spend was falling by around 25% in the middle of 2007. That means a lot less spent on fun.

House prices were also bound to fall. As soon as first-time buyers were priced out, the market had to collapse at some point. The fact that many people were taking a punt at being landlords and property developers only delayed the turn, as they kept pumping money into a dead market. Ostriches all over again - in the 90's, farmers kept starting ostrich farms, having read that they were a sure way to get rich. Only problem was that I didn't know a single person who had bought ostrich meat at all, let alone adopted it as a regular purchase.

I don't believe I was the only one who read about house prices increasing rapidly or food getting more expensive. Presumably, the experts also get a daily paper - they ought to, as many of them write for one.

So why didn't they all put two and two together and get something rather closer to four than a million?