For almost everyone, the New Year brings with it a fresh sense of optimism, a feeling that this year will be different, better even, than the year just passed. But after only a week of 2015, the overbearing reality of the state of the world’s affairs seems quite enough to extinguish any lasting optimism. Conflict and change, it appears, will be common themes in 2015. But how do we go about forecasting political and economic trends, as well as significant events that will undoubtedly punctuate the year ahead?
It was with 2015 in mind that I looked forward to interviewing Roger Bootle, Executive Chairman and Founder of Capital Economics, an independent macroeconomic forecasting agency. The firm, as Bootle is proud to admit, has “a really quite impressive track record”, and emerged as the top economic forecaster of 2014 in a Sunday Times study.
In an amusing twist, it becomes apparent that Bootle is able to empathise closely with my experiences as an undergraduate at Merton, having also studied PPE there. Much to my disappointment, he confirmed that Merton had the same reputation when he was an undergraduate as it does now. Bootle mused that it had good food but “it was pretty academic,” and everyone regarded it as full of students who “work all the time and don’t have any fun”. It is interesting, we agreed, to see how reputations and trends persist through time.
The notion of trends persisting across generations is one that Bootle applies to his own macroeconomic forecasting. He informs me that both he individually and the firm Capital Economics have a very different approach to other macroeconomic forecasters.
“We place a lot of emphasis on history. At Oxford when I was a graduate student, I was briefly supervised by Sir John Hicks who although he was a great theoretician, was also very interested in economic history. He made me constantly want to look at previous periods for historical parallels with today’s events. So, for instance, when it came to Britain’s exit from the ERM in 1992, which was probably one of our greatest forecast successes, I was fully aware of the experience of 1931, when Britain came off the Gold Standard. Most of the economists in the City were not.”
It is Bootle’s ability to relate current events to historical trends which appears to set him and Capital Economics apart from the competition. Given his impressive forecasting record, I decided to pick his brains about what he expects from the world in 2015. Bootle suggests that elections in Greece scheduled for later this January are “already the big story of 2015”. Opinion polls point to victory for Syriza, the far-left populist party. Its leader, Alexis Tsipras, wants to maintain the country’s status as a member of the Eurozone, but end austerity arrangements, repudiate some of Greece’s debt burden, and ditch the bail-out conditions imposed by Germany and the ECB. “A very inter- esting package,” muses Bootle, a hint of irony in his tone, “I think there’s a significant chance that Greece is going to be out of the Euro.”
Were this to happen, what would be the plan? Bootle, referring to his winning entry for the Wolfson Economics Prize, insists that people would have to continue using the Euro and that “accordingly the denomination of the new currency [the Drachma] should be exactly the same, so that people carry on using the Euro domestically.” Tantalisingly he tells me: “We’ve had a certain amount of interest in the [Wolfson] report and the issues it raises from at least one government in the Eurozone.” Unsurprisingly, however, Bootle declined to disclose to exactly which government he was referring.
With much of the continent in dire straits, many people, I suggest to Bootle, will wonder why the UK would want to continue its close relationship with Europe, at the expense of free trade with China and the US for example. He agrees that the EU is “a very flawed institution” but contends that the UK and Europe have “a number of interests and attitudes in common” and that therefore “it makes sense for us to have some sort of association. The question is what sort of association that should be.” Reform is needed but seems unlikely to happen soon, given the bureaucratic nature of many of the EU’s institutions.
Bootle does not, however, agree that Britain should vote to leave the Union should there be a referendum during the next Parliament.
“It is possible, it seems to me, that for political reasons, if we left, the remainder of the EU could be quite nasty with us, even if it was against their immediate economic self-interest.” Britain cannot simply pick–and-choose which parts of being in the EU it wants to retain, and which parts it wants to discard. The European question has no easy answer it seems.
Concluding the interview, I begin to recognise the balance of change and continuity as we move from one year to the next. As Bootle shows me the way out, he asks me whether I’ve got Collections before term starts, recounting his experiences of them during his time as an undergraduate. It looks like although there will be considerable change in 2015, some things always remain the same.