Unemployment factors
Sir: In 'Following Friedman' (28 May), Tim Congdon says that our procedure when making a medium-term forecast is to 'ex- amine the economic data for the last ten years, add them up, divide by ten and then assume that the resulting numbers will be average performance in the next few years.'
The following table, based on our most recent forecast, suggests that he is talking
nonsense: Annual averages
Growth of output 1972-1982 History Forecast 1982-1986 (per cent) 0.8 2.2 Inflation (per cent) 13.6 6.3 Change in unemployment (thousands) 194 143
As for his other patronising comments, I would not in any way regard as a 'fantasy' the idea that unemployment and inflation could fall together. However, Mr Congdon ought to know that it is perfectly possible to believe in the 'natural rate' of unemploy- ment (as I do) while still fearing that labour markets adjust very slowly, so that in prac- tice further reductions in inflation may in- volve a temporary rise in unemployment.
I shall be delighted to be proved wrong but meanwhile I believe that it is unwise to base forecasts either on simple arithmetic or on facile interpretations of someone else's theory.
Alan Budd
London Business School, Sussex Place, London NW I
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