An Irishman's Diary

JOE McBride (Letters, November 19th) submits that “if the best economists in our country, people such as David McWilliams and Morgan Kelly, had been listened to, we would not have arrived at our current state of economic abyss.”

Well, quite. But I would counter-submit that the problem with economists, always, is knowing which of them are the best, before it’s too late.

We needn’t drag up Shaw’s famous witticism about the profession’s inability ever to reach a collective conclusion. Suffice to say that some of our leading economists also got it wrong in the past, whereas at the time their arguments sounded just as impressive.

Now, precisely because he was ignored four years ago when his warnings might have saved us, Professor Kelly looks like the prophet in the wilderness.

We imagine him as Morgan the Baptist, wandering the desert out beyond Donnybrook: wearing a raiment of camel hair, eating locusts and wild honey, and telling anyone who’ll listen about the coming of the IMF.

Furthermore, our new self-flagellating mood persuades us that, having been right about that, he will henceforth be right about everything else, no matter how bleak the prediction.

But I've been following the debates among his fellow prophets over on irisheconomy.ie, (where some of the threads rival War and Peacefor longevity). And even now, it's hard to find consensus.

Especially for those of us who struggle with numbers, the only thing the contributors seem to have in common is how appallingly plausible they all sound, even when diametrically disagreeing.

Nevertheless, it's a measure of how far the country has fallen that we are all belatedly fascinated by what economists have to say. Which is why, in the interests of better following their advice in future, I believe it would be helpful if they took a lead from another profession and its in-house publication. I refer to that highly-influential journal of investment advice: The Racing Post.

The Post runs a very useful annual competition for press tipsters, in which competitors start each season with a hypothetical £1,000 fund, from which £1 is then staked on each of their selections.

As the year progresses, the paper also carries a league table, showing their relative positions, based on accumulated profit or loss. This lends a brutal clarity to their work. You see at a glance who’s hot and who’s not. But you also see that form is variable. The value of a tipster’s advice may rise and fall; past performance is no guide to future earnings, etc.

Clearly, opinions about the running of an entire economy cannot be reduced to quite such simplistic terms. With something that complex, there will always be a place for nuanced debate. Even so, it might be helpful if one of the in-house journals of economics complemented the debate with some sort of league table through which forecasters’ performance could be monitored.

One of the challenges, of course, would be how to set the parameters of the competition. No two economists would agree on the distance, gradient, or going of any “race”, never mind the size and number of obstacles to be jumped.

Even getting them to back a particular runner might be difficult. Any capable economist could easily explain how, while the horse’s hindquarters looked well-balanced, the outlook for its first and second quarters was bleak, and so on.

Thus I suggest the competition organisers would have to define all the “events“: setting certain black-and-white questions for competitors, such as predicting the percentage rise of consumer spending for the first week in December, or the spread on 10-year bonds the day after the Budget.

These would not always suit individual economists’ specialities, just as some tipsters are strong on Leopardstown in December, while weak on the Curragh in July. But if the questions were chosen carefully, the process should even itself out in the long-term.

Perhaps a bigger problem is that the competition would require economists to participate voluntarily. And no doubt many would think it beneath them to be compared with mere racing hacks. But perhaps the two worlds are not as far apart as they think.

As I’ve argued here before, there are grounds for suspecting that the property boom probably reached its peak in April 2006, when a horse called Numbersixvalverde won the Aintree Grand National, a year after it had claimed the Fairyhouse equivalent.

Despite having a tenner each-way on it, I was vaguely troubled at the time that we were now even calling horses after holiday homes in Portugal.

Which is when I first suspected that both the equine and housing markets were overheating. (It seemed an ominous footnote to both last year when Numbersixvalverde was forcibly retired, due to leg injury).

But getting back to the helpfulness of league tables: I find that, apart from its convenience for making comparisons, the one in the Racing Postserves another educational purpose. Namely that at any given time, about one-third of the experts featured are showing an accumulated profit, while two thirds are in loss.

Sometimes when I’m tempted to back a horse, based on gut feeling, I find it useful to reflect on the overall performance of these seasoned professionals, who have researched all the angles and actually know what they’re doing.

This process results, often, in my not having a bet at all. And I would estimate that on at least two-thirds of such occasions, that decision has saved me money.

• fmcnally@irishtimes.com