In case you didn't know, the theory that says economic fundamentals explain most presidential election outcomes predicts that Obama will win. From The Monkey Cage.
The problem with relying on economic indicators is that they frequently need revisions. One only has to look at 2008 for a prime example of revisions being important.
Today, we know that in 2008, the USA was in a recession. But at the time, indicators pointed to a economy with slow growth, not to growth rates reversing. Right-wing economists argued that the USA was not a recession, including a Freakonomics blogger who said 6% unemployment was not that big of a deal. It was only in December 2008 that the federal government released revised indicators that showed that the USA was in a recession since 2007, but at the time, people were debating whether the USA was heading towards a recession.
It is this reason (the unreliability of economic indicators) that make Presidential elections so interesting, even if you subscribe to the theory that economic fundamentals explain most cases. Most of the time, we don't know where those fundamentals are pointing towards until after the fact.
All true. But it's only a "problem" if you are interested in predicting the future. If you want to know who will win the 2012 election, the most reliable thing is to wait until November 7.
The reason we have these models is not that we need to predict the future. It's that we want to test our theories about how the world works. Out of sample predictions are important, but "out of sample" does't have to be the future.
Notable: As the economic indicators are revised, it is often the revised versions that explain things better. So it's the real-world economy (and other real-world fundamentals) that matter.
The problem with relying on economic indicators is that they frequently need revisions. One only has to look at 2008 for a prime example of revisions being important.
ReplyDeleteToday, we know that in 2008, the USA was in a recession. But at the time, indicators pointed to a economy with slow growth, not to growth rates reversing. Right-wing economists argued that the USA was not a recession, including a Freakonomics blogger who said 6% unemployment was not that big of a deal. It was only in December 2008 that the federal government released revised indicators that showed that the USA was in a recession since 2007, but at the time, people were debating whether the USA was heading towards a recession.
It is this reason (the unreliability of economic indicators) that make Presidential elections so interesting, even if you subscribe to the theory that economic fundamentals explain most cases. Most of the time, we don't know where those fundamentals are pointing towards until after the fact.
All true. But it's only a "problem" if you are interested in predicting the future. If you want to know who will win the 2012 election, the most reliable thing is to wait until November 7.
ReplyDeleteThe reason we have these models is not that we need to predict the future. It's that we want to test our theories about how the world works. Out of sample predictions are important, but "out of sample" does't have to be the future.
Notable: As the economic indicators are revised, it is often the revised versions that explain things better. So it's the real-world economy (and other real-world fundamentals) that matter.