This is the time when pundits make predictions about what will happen in 2009 – after a year of shocking and unanticipated economic events. The Queen, visiting the London School of Economics, wondered why the credit crisis and its evolution were not predicted. Here, Ma’am, is the outline of one loyal subject’s answer. You will appreciate, I am sure, that economic prediction is hard. National economies, financial markets and businesses are complex, dynamic, non-linear systems. Your economy contains many people and many agents, and there are many interactions between them.

Your Royal Society rightly commemorates the successes of the natural sciences. Many of these successes have been achieved because the problems of physics often involve objects large enough to be studied individually – the motion of the earth, for example. Or components small enough to be subject to statistical regularities – we can never predict the behaviour of an individual molecule or electron, but there are so many molecules and electrons that for most purposes it does not matter. Many of the phenomena we deal with in economics and business fall in between – the units of analysis are individualistic but also too numerous for their idiosyncrasies to be individually understood.