Bank of England Chief Economist Andy Haldane says that the economy is like a “colourless, inanimate rocking horse” and warned that economists at large are in danger of being “insular” and “self-referential” and must expand their horizons if the discipline wants to improve going forward, particularly when it comes to forecasting.
Speaking in Cambridge on Thursday, Haldane — a key lieutenant of BoE governor Mark Carney and a member of the bank’s MPC — said that for economics to keep its reputation, it must modernise, and look to other disciplines for guidance.
“One of the potential failings of the economics profession, I will argue, is that it may have borrowed too little from other disciplines – a methodological mono-culture,” Haldane said in a speech titled “The Dappled World.”
“I wish to explore whether there are insights and techniques from other disciplines which better capture these features of economic systems and which thus hold promise when moving the economics profession forward.”
Haldane cited the arguments of renowned post-Keynesian economist George Shackle, who described the economy as a “kaleidoscope,” contrasting them with more modern techniques.
“In one of his most famous metaphors, Shackle described the economy as a kaleidoscope, a collision of colours subject to on-going, rapid and radical change. Many of our existing techniques for modelling and measuring the economy invoke a rather different metaphor, with the economy a rather colourless, inanimate rocking horse.”
During his speech, Haldane addressed the criticism of economists in recent years both for failing to predict and explain major events like the financial crisis, and for consistently getting forecasts for growth and inflation wrong. The IMF has been one of the biggest focuses of these criticisms, overestimating the expansion of the global economy almost continually since the crisis.
“At root, these were failures of models, methodologies and mono-cultures. It has been argued that these models were not designed to explain such extreme events.”
“For me, this is not really a defence. Economics is important because of the social costs of extreme events. Economic policy matters precisely because of these events. If our models are silent about these events, this jeopardises the very thing that makes economics interesting and economic policy important. It risks squandering the human capital endowment the financial crisis has bestowed.”
The allusion was yet another strange turn of phrase from Haldane, who is now well known for his slightly off the wall approach to economics. Earlier this year Haldane described people as “
sentient, water-filled whoopee cushions moulded over millions of years of evolutionary experience,” in a speech, and in another, compared himself to Andy Dufresne, the lead character from cult film, The Shawshank Redemption.