07 February 2010

A Little Reminder on the Limits of Prediction

Hank Paulson and Alan Greenspan were on Face the Nation today. The former Treasury Secretary and Fed Chairman may well represent as much as we know about economics.

After offering their opinion about what projected deficits will mean for the economy over the next decade, they both very sagely predicted that the Colts would win today's Super Bowl. This was, of course, a brilliant little reminder of the limits of prediction.

Of course, everyone knows that an economy over a ten year period, and the influence of the deficit over economic activity for good, bad, or indifference, is a much simpler thing to predict than a mere game. Because a game, of course, involves the actions of independent agents, the unexpected, herculean efforts, unpredictable strategies, and chance. By contrast, an economy of 300 million people in a world of 6.5 billion, in a time when there has never been more opportunity for innovation in technology or social institutions, has none of that.

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