Economists aren’t very popular. Dismal scientists, after all, are the kind of experts who don’t know what they’re talking about but make you feel as if that’s your fault. Such bamboozling is often deliberate, especially when it comes to forecasting. Projections and prejudices take on the air of unchallengeable truths when expressed in faux-scientific language and garnished with mathematical hocus-pocus.
As an economist myself, I’d say that one of the few positives from this ghastly sub-prime crisis is that the profession is becoming more humble. Since the credit crunch, the use by economists of ever more complex models, and the increasingly inane assumptions that go with them, has partly reversed. Good.
We’re told the Federal Reserve has “ended easy money”. I’m not sure that’s true. Yes, the US Central Bank announced last Wednesday that its gargantuan money-printing habit is soon to be scaled back. Instead of creating $85bn per month ex nihilo, the Fed will from January conjure up just $75bn. That’s still a massive base money expansion of $900bn a year.
At the same time, in a move apparently meant to help cash-strapped US mortgage-payers, but actually aimed at global financial markets, Ben Bernanke bolstered his “forward guidance”. America’s benchmark interest rate is likely to stay near zero “well past the time when the jobless rate declines below 6.5pc”, the Fed Chairman told the world. So US monetary policy remains ultra-loose but is now slightly less ultra-loose than before. Maybe.