Blogs > Cliopatria > SUPRISE: ECONOMIC MODELS NOT PREDICTIVE

Jul 28, 2009 5:22 pm


SUPRISE: ECONOMIC MODELS NOT PREDICTIVE



Last week I enjoyed watching Former Congressional Budget Office Director, Alice Rivlin, squirming when Neil Cavuto asked her whether she can point to a single instance in which a CBO estimate turned out to be correct. She could not. But we must make some prediction, she helplessly repeated. Those predictions, of course, are based on mathematical models.

Given such dubious record, one would assume that experienced legislators and so called experts would know better. Well, it seems they do not. Not only do they throw away billions of tax payer dollars on scemes based on the fallible models but they are surprised when the models fail!

This is how Roger Lowenstein reports on The New Joblessness

The U.S. economy is not only shedding jobs at a record rate; it is shedding more jobs than it is supposed to. It’s bad enough that the unemployment rate has doubled in only a year and a half and one out of six construction workers is out of work. What truly troubles President Obama’s economic advisers is that, even adjusting for the recession, the contraction in employment seems way too high. As one administration official said, “This has been a very steep job loss.” One proof, he added, is that the country is deviating from the standard (among economists) jobs predictor known as Okun’s Law.

In the 1960s, Arthur Okun, a prominent economist, claimed to have discovered a mathematical relationship between the decline in output (that is, goods and services produced) and the rise in unemployment. It held up pretty well until recently. But this time around, although the decline in output would have predicted a rise in unemployment to 8 percent, the actual jobless rate has soared to 9.5 percent. So this recession is killing off jobs even faster than the things — like automobiles, houses, computers and newspapers — that jobholders produce.

Oh, yes, it is on the basis of such models that the advocacy on" climate change" is based. The difference, of course, is that the climate, like everything else, always changes and the experts no longer even dare predict the nature of the change!

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