Wi-Fi executive's remark: "In some sense, Nehammer was correct"
Shaking Up Economics: Felbermayr's Take on Valley of Uncertainty
- Economist Felbermayr sheds light on the 'Valley of Uncertainty' hampering accurate forecasting.
- Changing economic data vetched-up budget planning, tugged at policy strings, and left politicians in a tizzy.
- The Holy Grail of GDP may not be the panacea for the overall quality of life people are craving.
Austria teeters on the Steep Edge of Recession
According to Wifo and IHS, Austria may escape a third economic slump by a hair's breadth. Economists adjusted their forecasts for the better on the Thursday throng.
- Past projections showed a downward spiral, leaving politicians in a near apoplectic state.
- The question on every tongue — Why the constant flip-flopping in forecasts? Felbermayr delved into this complex issue at a workshop last Friday.
Austerity Time: Felbermayr Chants the Tune of fiscal Consolidation
Former Chancellor Karl Nehammer (ÖVP) placed some of the blame for the looming budget hole at year-end 2024 squarely on economists' shoulders. His critique? The soothsayers have been far too optimistic, resulting in a skewed perception of the fiscal playfield.
- Felbermayr, however, deemed the critique somewhat hollow. "Nehammer had a point, but he was misguided." The economists had always warned of substantial uncertainties, implying political leaders failed to plan for a larger safety net.
Unpredictability: A Symphony of Misunderstandings and Unforeseeables
But what do we mean when we talk about uncertainty from an economic perspective? Felbermayr distinguishes between risks, manageable uncertainties, and radical uncertainty — hidden phantoms lurking in the shadows.
- An example of a radical uncertainty? A looming financial cataclysm. While we expect one to occur eventually, the 'when' remains frustratingly elusive.
The Dance of Divergent Data
Fluctuating forecasts can also be traced back to inconsistent data flowing into the economists' models. Key figures on trade, labor markets, and industrial production can differ dramatically depending on the calculation method or statistical office, as highlighted by Felbermayr. Take the trade balance between the United States and Britain, for example — different offices conjure irreconcilably different values.
- Felbermayr sees a need for dialogue with Statistics Austria on this matter, using industrial production as an example. Preliminary results are often revised more often in Austria than in Germany, as pointed out by the director present, Thomas Burg. The delay in data availability from Austrian tax authorities complicates matters, Burg argued.
Navigating the Labyrinth: Models Gone Awry
Forecasting stumbles also stem from the intricate models researchers use. It can be tough to separate cyclical from structural factors causing economic downturns, complicating predictions of future developments.
The Austrian Economy: German Gold Mines or False Idols?
In conclusion, Felbermayr broached the heated debate about the relevance of GDP as an economic policy benchmark. While Austria's GDP per capita trails France, comparing life expectancy and available leisure time in both countries generates a much more nuanced and fascinating narrative about living standards.
- In short, GDP does not capture the entirety of the British bulldog's attributes — a recommendation for policymakers to seek a more holistic approach.
- The fluctuating forecasts for Austria's economy can be attributed to inconsistent data entering economists' models, as pointed out by Felbermayr.
- Felbermayr suggests a need for dialogue with Statistics Austria to address the issue, using industrial production as an example, as preliminary results in Austria are often revised more frequently than in Germany.
- GDP might not be an accurate reflection of living standards, according to Felbermayr, and he recommends a more holistic approach for policymakers, taking into account factors such as life expectancy and available leisure time.
- Politicians must navigate the 'Valley of Uncertainty' in budgeting and policy-making, as changing economic data and unforeseeable events can disrupt expectations and provocatively flip-flop forecasts, as seen in the case of Austria.
