Friday, 9 July 2010

Down with naked numbers!

On the front page of today's Guardian Larry Elliott reported (Watchdog under new pressure for cutting job loss forecast) that the Office for Budget Responsibility (OBR) had forecast job losses of 499,000. That number is ridiculous, not in itself but in its claim to precision.

“499,000” means that the number of jobs lost will be neither 498,000 nor 500,000 but 499,000. That’s a claim worthy of a racing tipster or a psychic. It has no place in a sensible economic discussion.

In its pre-budget report the OBR discusses the uncertainty in its forecasts with care. It saysthe probability of growth being within one percentage point of our central forecast [2.5%] in [2014] is around 30 per cent". In science we generally quote a range or the standard deviation. In the OBR’s case the growth forecast is 2.5% +/- 2.1%; the range 0.4% to 4.6%. That's a dismal level of precision but at least it's honest - and that is not something you always get in official statements.

It’s obvious that this uncertainty affects every other OBR forecast. I can't find the job loss forecast in the OBR's Pre-Budget Report but if it's proportional the +/- 1 SD range would be 100,000 to 900,000. (And let's remember that there's a one third chance that reality will fall outside this range!)

You can't understand forecasts without knowing the uncertainties. Let's push to have them spelt out.

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