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Tuesday, February 08, 2005

On the one hand...but then on the other hand

Econometrics can be used as a predictive or an explanatory tool. Business types and the general public often think that economists can "predict" the future and therefore we hold some magic insight. The truth is economists are pretty crappy at predicting the future. Why? Because there are so many things that can happen between today and, say, five years from now that can knock even the most sound projection off track.

From the Congressional Budget Office is this beautiful graph that shows how uncertain we are about the future. If Vegas was running odds on our surplus/deficit, the lighter shades would carry longer odds and the darker shades would have shorter odds. The upshot is the government economists can't predict where the national economy will be in the future...please ignore all claims to the contrary.

(Deficit or surplus as a percentage of GDP)

From this CBO report.

Smart post admin but i think you need more explanation and more Pics
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