The DUHHHHH factor. Part 2!
Why is Bush's Back-end Loaded Tax Cut Plan is a flat earth proffer!
Natural Variability. Even a chaotic system may have a well defined attractor, i.e., a well defined distribution describing the probability of occurrence of various economies. Such a distribution would describe the natural variability of an economy which arises from the economy's chaotic elements, and this distribution may itself be predictable beyond the limit of deterministic predictability. The natural variability of the economy's system on time scales of decades and longer is very much dependent on an variety of processes. Economic evidence indicates that it may be very large. However this natural variability is not yet well determined or understood.
Errors in Initial Conditions. Even in a non-chaotic system, the ability to predict future behavior depends on the accuracy of the knowledge of the system's initial state. For example, we do not yet know how accurately we need to know the temperatures of the markets today in order to make a prediction of climate of a given accuracy, say, 10 years in the future. Given the long time scales of the monetary circulations, the economy trends of the coming decades may be crucially dependent on the history of economy during the last few centuries. The extent of this dependence is not known.
Model Errors. Even if the above factors did not introduce limits on our ability to predict economic events, our economic predictions would be hampered by the imperfect state of current economic models. That these models have major errors is demonstrated by the fact that no coupled economy-market general circulation model has been able to reproduce a economic equilibrium like the current economy without introducing artificial sources of money supplies, interest rates, and/or momentum at the interface between the economy and the markets (i.e., "flux corrections"). The source or sources of these errors is not always known, but there are many potential sources that need to be investigated. Some examples are inadequate resolution of stock market and tax revenues, and inadequate representations of subgrid scale processes such as savings and retirement accounts in the economy. The need to parameterize subgrid scale processes may introduce severe limitations on our ability to represent these processes and their impact on economic change, and we need to understand these limitations and the resulting uncertainty. |
