Thursday, July 13, 2006

In then end they are just models after all...

As debate about the 2007 Farm Bill intensifies, numbers will start pouring out from economic modelers like the folks at
FAPRI. But if you have been having doubts about the various weather models, why should we believe economic models?
Maybe we shouldn't.

But how plausible were the numbers? Twelve years on, economists have shown little inclination to go back and check. One exception is Timothy Kehoe, an economist at the University of Minnesota. In a paper published last year, he argued that the models “drastically underestimated” NAFTA's impact on trade flows (if not on jobs). The modellers assumed the trade pact would allow people to buy more of the goods for which they had already shown some appetite. In fact, the agreement set off an explosion in the exports of many products Mexico had scarcely traded before. Cars, for example, amounted to less than 1% of Mexico's exports to Canada before the agreement. By 1999, however, they accounted for more than 15%. The only comfort economists can draw from their efforts, Mr Kehoe writes, is that their predictions fared better than Mr Perot's. A low bar indeed.

More here from The Economist

While I do not doubt the sincerity nor the integrity of such groups, I do always remember they would be much smaller and poorer organizations if we did not have intrusive government interference in the ag sector. Ag economists are one of the big beneficiaries of a complex and expensive ag policy.

What kind of answers do you think they want to find?

Update (7/14): Another model that is not working out as well as hoped measures job creation to contrast with BLS stats that roil the markets every month.

No comments: