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0 pointsjosephlord13y ago0 comments

The weathermen can give you probability ranges for various events and their models include the possibility of storms. Many widely used economic models do not have the capability to model crashes at all. Many models don't cover banks, debt or money at all.

I don't expect a model to tell me that the markets will crash tomorrow but I would have expected widely use models to indicate that we were in dangerous period in 2005-2007 and that the upwards path was impossible to sustain over a 10 year period.

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jacques_chester13y ago· 1 in thread

Economists can give probabilities too; it depends on the type of model used.

Predicting a crash immediately before it happens is not so difficult. Lots of economists were clanging the alarm bells all through the mid-00s. Predicting exactly when and exactly what the trigger would be? Basically impossible. Economists don't do that (it's left to advisors, pundits and newsletter salesmen).

josephlordOP13y ago

Agree exact timing is not identifiable but the amount of warnings before 2007 was really pretty low. Maybe there are some that can be added to this list and it would be interesting to see if there were any with very different approaches:

http://www.debtdeflation.com/blogs/2009/07/15/no-one-saw-thi...

So there were a few but they generally weren't in the mainstream of economics (from Krugman to the Chicago School) which generally did a very bad job. Roubini did call it but none of the others on the list I linked to were people I had heard of before 2008 (but I haven't formally studied economics).

Many of the common models taught and used never indicate crashes, this sort of thing should just be thrown out. Most of them also don't really include the financial industry (including debt).

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