Economics:It is well known that economic forecasts are often wide of the mark. But, to my knowledge, over many decades of hopeless prognostications only one economist has ever been fired for getting it wrong writes, Chris Johns

The gentleman in question worked for a big bank and, in the wake of the October 1987 crash (notice the looming 20th anniversary), forecast an imminent recession. That the economy actually accelerated after the stock market turmoil didn't escape the notice of his employers.

Just why this hapless individual was singled out remains something of a mystery: other prominent forecasters made at least as big an error and went on to build successful and lucrative careers, making one mistake after another. Perhaps economists are more prone to random events ("Black Swans" in the modern jargon) than others. Indeed, we might be tempted to conclude that if you voluntarily pursue a career where you are expected to forecast events that are utterly random in nature, you deserve everything that your bosses and customers will throw at you.

Einstein is reputed to have said, after the explosion of the first atomic bomb, that he wished he had been a plumber. Many economists will understand the sentiment.

Economists often respond by arguing that they make forecasts because someone has to. Nowhere is this more evident, and more important, than in the group of economists that run the world's central banks. Here, we are beginning to see evidence building of very different assessments about the likely evolution of economies. Forecasts must now be made in the light of the financial crisis that has resulted from a few mortgage holders in the United States either being late with their repayments or actually moving into outright default.

Central bankers set interest rates on the basis of forecasts. The US central bank has a long history of pragmatic policymaking, heavily weighted to what incoming data say about the current state of the economy, but with one eye on a judgment call on what the future might hold. The Bank of England, by contrast, purports to set interest rates exclusively with regard to where inflation is likely to be in a couple of years' time.

The Fed is about to cut rates, mostly because the US economy has already weakened and it is worried that this might get a lot worse. The Bank of England, by stark contrast, clearly believes that what is happening in financial markets has very little to do with it and is most unlikely to impact the wider economy. In a sense, these two contrasting assessments reflect the underlying approaches, one pragmatic, the other very academic. The Fed is going to cut rates, in part to buy some insurance against things going completely pear shaped. Mervyn King, the governor of the Bank of England, clearly believes that his forecasts of the economy tell him not to cut rates.

The climate of debate, and resulting policy actions, could not be more different. The ECB stands somewhere in the middle, perhaps leaning more towards Fed-style pragmatism.

This is slightly surprising: a straw poll of central bank watchers may have expected the boys in Frankfurt to be the most likely to pursue a dogmatic approach.

Public debate in Britain, led by Martin Wolf of the Financial Times, argues that the shutting down of the financial system is a localised problem and that foolish bankers and overpaid hedge fund managers need to be taught a lesson. This, to me, is nuts. It seems to say that we are prepared to take huge risks with the broader economy so that we can punish the wide boys in the City of London.

At the end of the day it comes down to those pesky forecasts: if there is no substantive threat to the economy, there really is no need for central bankers to react. But we are not talking about widget makers in the north of England here: Mervyn King can and does set interest rates with little regard to small and relatively insignificant industries. There are plenty of firms that may struggle under tight monetary policy but that doesn't matter much - for the rest of us at least - provided the tribulations of those firms don't have serious knock-on effects.

But the financial system is the economy. It is, in my view, verging on reckless to believe that a dysfunctional banking system poses few risks for the broader economy. Mr King said this week that to act now to restore order to the money markets would run the risk of sewing the seeds of a future crisis.

This is an odd perspective: "I'm going to do nothing about the current crisis because I'm worried about the theoretical possibility of another one further down the road." He clearly believes that the current problems will spontaneously disappear. This is a high risk bet, a high risk forecast.

Doing nothing now might be precisely the way of making sure that the next crisis arrives promptly and takes the form of a recession.

Why take this risk? Perhaps Mr King is taking the view that what started in the US needs to be sorted out in the US. And he knows better than us that the Fed is definitely going to do something. Perhaps - this might verge on the uncharitable - he thinks that there is not much wrong with the world economy that a good recession wouldn't sort out. We all hoped that this style of central banking disappeared in the ashes of the 1930s global depression.

Central banking is more art than science, based on imperfect forecasting models. Humility with regard to forecasting should be part of any economist's tool-kit. Central bankers should not be walking into the bookies and laying big bets. Buying insurance is surely the better option.

Chris Johns is head of global research and equity portfolio management at Bank of Ireland Asset Management. All opinions are personal.