Yanis Varoufakis, Vicky Pryce and Roger Hearing debate economic forecasts. This excerpt was taken from ‘Economic fact and economic fantasy,’ recorded December 2023.



Although there has been a recent fall, central banks are widely seen to have failed to control inflation. At times running up to six times target, the banks blamed the Ukraine war, but critics point to the rapid rise in inflation before war broke out, and amongst other factors often find quantitative easing at fault. Moreover, some claim there is a more fundamental problem that there is no overall coherent economic theory in the first place. Bank models failed to predict the 2008 crash or the more recent cost of living crisis.

In 2015, the European Central Bank claimed that neither monetarist nor Keynesian economics provided solutions to the financial crisis, leading some to question if any economic theory had the answers. Should we conclude that central bank failures to predict, let alone avoid, economic crises are evidence of a deep underlying flaw in their understanding? Or were banks just negligent in their failure to respond to evidence of rising inflation? Do we need a radical new economic theory or should we conclude that the economy is not predictable, forecasting a mugs game, and the options for government policy wider than commonly supposed?