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Monday, March 5, 2012

Like I Said....................

I just ran across a paper by John L. Buckley on the subject of dynamic scoring (No, don't even ask), but this paragraph is exceptionally appropriate.  But first, Counterfactual assumptions is an economists term for utter crap unsupported any facts whatsoever.  Onward...............

"1. Simplifying/counterfactual assumptions.  It is not possible for a mathematical formula to accurately reflect our complex economy or human motivations for working or saving.  Therefore, the models use simplifying assumptions that can be counterfactual in that they are contrary to observable facts.  It is beyond the scope of this report to describe all of those assumptions............"

Buckley has pointed to exactly the fact that makes macroeconomic models useless.  The Business Cycle is driven by human expectations, not financial numbers, and human behavior defies mathematical modeling.  

You can find a simple explanation of this vital point in The Great Recession Conspiracy (anywhere ebooks are sold), or a complex explanation in This Time Is Different, Eight Centuries of Financial Folly, by Reihnart and Rogoff, Princeton University Press, 2009.  

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