A fistful of intellectual power: Goodbye Edward Hugh, R.I.P

Tonight I got the very sad news that British-Catalan economist Edward Hugh has passed away.

This is from Ara in English:

ARA has learned that British economist Edward Hugh (Liverpool, 1948) died of cancer on Tuesday at the Josep Trueta Hospital in Girona. Hugh moved to Catalonia in the 1990s and was considered by The New York Times as the “prophet of eurozone doom”, as he was one of the first to predict and warn of the economic crisis.

Edward Hugh was born in Liverpool and studied Economics at the London School of Economics. He was currently living in the village of Escaules, in Catalonia’s Alt Empordà, where he dedicated himself to research and to macroeconomics. He also wrote a blog about current events and was a contributor to this newspaper. In 2014 he wrote ¿Adiós a la crisis? (Farewell to the crisis?). In his book the British economist addressed issues such as the demographic crisis and its economic implications, as well as the possible road towards sustainable negative growth and the stagnation of the European economy. Hugh also was one of the first economists to predict that Catalonia’s finances would be intervened by Madrid.

Hugh, who turned 67 on Tuesday, was diagnosed with the disease a few months ago, and was aware that his prognosis was not good. While he enjoyed little recognition in Catalonia, he had a great influence on investors and on the principal economic media around the globe. He was noted for having predicted the Euro crisis and the real estate bubble in Spain, which earned him significant prestige and influence. He used this influence to explain Catalonia —and especially Catalonia’s fiscal deficit— to the world, according to ARA’s CEO, Salvador Garcia-Ruiz.

NY Times correspondent Rafael Minder highlighted Hugh’s outgoing personality and, at the same time, his willingness to share his time. Minder recalls Hugh’s ability to see and live the crisis from the front row, but without losing perspective, as well as the importance that the Spanish crisis would have for European construction. The journalist added that, in contrast to the usual image of economists as closed and academic, Hugh “was someone who enthusiastically shared his ideas and tried to win over all types of people”.

Edward Hugh, who spoke English, Catalan, Spanish, and French, decided that he could reflect and write from the small village of Escaules in the Alt Empordà, which he called “little Tuscany”, after years of study and of accumulating experiences throughout his life. 

The economist, born in Liverpool to a Welsh family, never hid the fact that he had wanted to live in a monastery, and this small Empordà hamlet of 60 inhabitants came rather close to this idea of having a place to reflect, read, and write. Satellite television and the internet allowed him to remain connected to the world, while Escaules gave him the peace he needed to work…

…Hugh, who claimed to be one of the top experts on the Spanish economy and assured that he had been correct with more than 80% of his predictions, supported Catalonia’s secession from Spain. “Catalonia could have a future, if it leaves”, he said. This position was based not only on his economic studies, but also on his thoughts, feelings, and actions. “He was a Catalan patriot”, said Salvador Garcia-Ruiz, who also underscored the work Hugh did in explaining Catalonia and its situation to the world: “He did a lot of work, some which can be seen and also of the kind you cannot see”.

I fully agree with this description of Edward Hugh. He was a very kind man who always came across as completely unideological and he was willing to talk to everybody – including to me. We only meet face to face a couple of time but kept in contact over the years.

It was not a close contact, but he would also be kind to respond to mails and he was eager to share his views.

I had the greatest respect for Edward. He was a real free-thinker. A very kind and clever man and a much under-appreciated economist. That being said I also know the deep respect he had particularly among people in the financial markets – including myself.

I often disagreed with Edward – particularly after 2008 – but he was always very nice to me. It says a lot about him that intellectual disagreement never changed the way he interacted with people.

Prior to the crisis we had many of the same worries about the global economy and particularly about Central and Eastern Europe and Southern Europe and I always felt very proud when he quoted my research on his great blog – A Firstful of Euros

Edward’s latest book Is The Euro Crisis Really Over was published in 2014. It is certainly not a monetarist tract and Edward was a lot more skeptical about how potent monetary policy is than I am, but I would still highly recommend the book that focuses on a lot of the major structural problems that faces the European economy also if we get monetary policy right.

Edward, you will be dearly missed. R.I.P.



Do economists know what will happen in 2016?

For the last couple of months I have been writing a weekly column for the Icelandic newspaper Fréttablaðið. I enjoy it a lot. First of all it keeps me in contact with Iceland – a country that since 2006 has been an important part of my professional and personal life. Second, it is a good alternative to my blog where I mostly focus on monetary policy.

I normally do not share the stuff I write for Fréttablaðið on this blog, but will do it from time to time in the future if I think that others than an Icelandic audience can benefit from reading it and it fits the “profile” of my blog.

An example of this is the largest op-ed, which has been published today. Have a look at the Icelandic version here.

Here is the English version…

Do economists know what will happen in 2016?

I am not going to lie – I am proud of my forecast in 2006 that Iceland would be facing a server economic and financial crisis. However, I am always very humble about the fact that to forecast something correctly you have to a large extent to be lucky and I generally don’t think that economists or political scientist for that matter are especially good at forecasting.

In fact – and that might be a surprise to most non-economists – when you study economics there is not a course in “forecasting”. It is simply not what economists are educated to do.

What economist on the other hand can do is analysis the impact of different shocks to the economy or analysis the impact of for example an increase in the minimum wage.

Said in another way economists are very good at in hindsight explaining what happened and why it happened. The reason for this is that what economist cannot forecast shocks – for example an earthquake, a terror attack or for that matter a major positive technological development – since a shock by definition is exactly that something you didn’t see coming.

How economists actually “forecast” – reversion to the mean

So what do for example bank economists do when they try to forecast what will happen to the Icelandic economy in 2016? Well, the first thing they do is basically to ask whether present growth is high or low compared to some measure of what is the long-term growth rate for the economy and this essentially is just assumed to be some measure of the historical average growth rate. Or said in another way if the present growth rate is above the historical average then the economist will “forecast” that growth will slow in the next 1-2 years back toward the historical average.

The “forecast” for inflation will typically be done in the same way maybe adjusting for whether the central bank has a target for inflation – for example 2%.

Obviously if a shock just hit – for example that Sedlabanki had hiked interest rates dramatically then the economist would try to take this into account, but the general rule is one of “mean-reversion”.

And this is in fact not a bad forecasting strategy or rather it is the only thing the economist can do and I personally have no problem with that. However, the problem is that economists are not too eager reminding people that this is in fact the way they do forecasting.

Set up prediction markets

So should we stop listening to economists? I certainly don’t think so, but we should also remember the joke that god invented economists to make meteorologists look good!

We are not better at forecasting Icelandic growth in 2016 than meteorologists are at forecasting the Icelandic weather in the Summer of 2016.

I, however, think that there is something else we could do. We could listen to the “wisdom of the crowds”. That is we could set-up so-called “prediction markets”. That is essentially betting markets, where you can bet on for example what real GDP growth will be in the third quarter of 2016. I have no clue what that number will be, but if there was a prediction market for Icelandic GDP in Q3 2016 I am sure it would be a better forecast that any forecast I could come up with.

Happy New Year!



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