Sunday, March 16, 2014

The forecasts are no good

Past a certain point, forecasts are indistinguishable from chance. There is not a lot we can say about the economy ten thousand years from now. An economic prediction horizon that far out is obviously ludicrous.

It turns out we regularly miss on economic predictions within a quarter and the misses are random in nature. We are systematically picking economic prediction horizons that are too long because the shortness of our actual prediction ability would make it clear that we're flying by the seat of our pants and that's just too scary to admit.

Economists are in the business of being a scapegoat. This is not science but shaman business. Until we internalize that and stop asking them to make predictions beyond the limitations of their craft, we will never progress in our planning effectiveness.

Socialist planning specifically, is posited on the ability of groups smaller than the entirety of the market making planning decisions for the whole market and gaining efficiency improvements because of the concentration in decision making power. If economic forecasts are limited to very small time frames it becomes obvious that socialist planning is bunk.

HT: Instapundit