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Why we can't predict

The Queen famously asked of the 2008 crisis: why did nobody see it coming? An honest answer would have been: because economists almost always fail to foresee recessions. Back in 2000 Prakash Loungani, an economist at the IMF, studied the record of consensus economic forecasts. He identified 60 recessions between 1989 and 1999 - defined as calendar years in which GDP fell in any particular country - and found that the consensus forecast the previous April had predicted just two of them. "The record of failure to predict recessions is virtually unblemished," he concluded.

The failure to foresee the last recession was not, therefore, an isolated one. It was part of the pattern. This tells us that something is wrong with mainstream economic forecasting. But what? A big part of the answer lies in the economics of complexity - the fact that economic outcomes are the result not only of individuals' decisions, but of interactions between individuals.

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