The problem with bad models

Paul Krugman unwittingly explicates it for our edification:

Given sufficient demand for its output, America would produce more than $30 trillion worth of goods and services over the next two years. But with both consumer spending and business investment plunging, a huge gap is opening up between what the American economy can produce and what it’s able to sell….

Even the C.B.O. says, however, that “economic output over the next two years will average 6.8 percent below its potential.” This translates into $2.1 trillion of lost production. “Our economy could fall $1 trillion short of its full capacity,” declared Mr. Obama on Thursday. Well, he was actually understating things. To close a gap of more than $2 trillion — possibly a lot more, if the budget office projections turn out to be too optimistic — Mr. Obama offers a $775 billion plan. And that’s not enough.

Now, keep in mind that the economic growth estimates which go into these calculations AVERAGE a revision of more than 100 percent from one quarter to the next. Even if one assumes the variances are not stackable, this still means a probably variance from the CBO estimate of at least $4.4 trillion, probably on the down side based on the track record of past estimates. Yet this enormous variance which renders the calculation useless doesn’t slow down Keynesian true believers like Krugman, or prevent them from making very specific policy recommendations that wholly depend upon the accuracy of these estimates. When the measures fail, as there is a very high probability that they will, Krugman will no doubt lament that it was too little, too late rather than reject his worthless economic model.

And, of course, the chattering class will throw up their hands and declare that no one could possibly have known that these expert-concocted plans weren’t going to work.