Economists should be ashamed…
Doing some Macro homework. I keep stumbling across the same problem over and over: economists who love to forecast way into the future — and way beyond the range of their sample.
For example, reading “America’s Dark Materials” in the Economist, we find the sentence: “After making $36.2 billion in 2004, America made just $4 billion on its net foreign assets in the first three quarters of 2005. If it continues on its present trajectory, it will shell out about $190 billion in 2010, Mr. Cline calculates.”
So let me get this straight — two data-points over three quarters, Mr. Cline was able to forecast out 6 years? Yes, that seems totally reasonable.
The same goes for BRIC growth rates. Sorry — I simply don’t buy that growth rates over the last 5 years can predict the next 40.
Rule of thumb: the length into the future of your prediction should be smaller than your sample size. Preferably, much smaller.
