Presented with bad news, most people tend to play it down if they can. Professional forecasters are no exception. Alas, their untoward optimism often hurts those they smile upon.
Economic forecasters are a sunny bunch. They rarely predict a downturn. Climate modelers too. When their models tell that global warming is accelerating, they fiddle the algorithmic knobs to turn the heat down. Human nature, incentives, and political pressure get in the way of realistic assessment.
In the case of economists, rosy forecasts by the supranational financial institutions – the World Bank and International Monetary Fund (IMF) – can have serious consequences. That is especially the case in poor countries today, where covid-19 has ravaged economies; with governments, international organizations and investors are using forecasts to guide their decisions.
IMF and World Bank projections can strongly affect government spending and borrowing plans of some nations. Investors may lend more cheaply to countries expected to grow rapidly. And the forecasts determine whether the fund and bank think a country’s debt is sustainable, which in turn determines whether a nation qualifies for a bail-out.
Optimism runs strong. This has been especially true for nations with natural resources. Although oil and mineral discoveries do not boost growth immediately, IMF forecasters consistently predict that they will.
The bill comes due down the road. Overestimating average annual economic growth by a percentage point for the next 3 years, as the IMF does some 40% of the time, reduces growth 3 years later by a full percentage point.
Since the covid pandemic began the IMF has revised down growth in rich countries in 2020 by 3 percentage points more than that in developing ones. That is odd. Lockdowns and social distancing have been at least as severe in poor countries as in rich ones. But fiscal responses have been much weaker, and capital outflows and currency pressure are bigger threats.
Climate modelers face a distinct set of pressures. Reputations hang in the balance: not just in how well a model mimics the past, but also in what it says of the future.
Conservative projections – that the world won’t get too hot too soon – relieves political pressure to do something. Conversely, scenarios which spell doom are often condemned as “alarmist.”
Recurring reports, including those presented here, show that the mass extinction event which will wipe humankind off the face of Earth is horrifyingly accelerating, and that our end is impending well before the end of this century.
Only the most pessimistic climate projection made this past decade reflects what has come to past in the last few years. During this century, by their improvement, models have increasingly showed greater emission/warming sensitivity and thereby faster hotting up. Pessimism is warranted. But governments’ attention is not looking forward to climate catastrophe right now.
Instead, inapt responses to a trivial but vexing virus pandemic have devastated economies. Politicians are looking for ways to put economies back on the rails of growth, thereby keeping self-extinction on track.
A little optimism by economists may do wonders in deluding the masses that the world can be righted quickly after the silly covid reaction has run humanity ragged. Since capitalism is a confidence game, the ruse may be a self-fulfilling prophecy – at least for a spell.
And it doesn’t really matter what the climate modelers come out with. There’s too much money riding on the status quo to turn humanity to a path of survival, regardless of how quickly doom may be expected to descend. Optimism merrily greases the slide to oblivion.
“Official economic forecasts for poor countries are too rosy,” The Economist (4 August 2020).
Ishi Nobu, “Climate model lowdown,” (3 August 2020).