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Can you really forecast inflation? They failed to do so before the whole Russia shit-storm, and they're trying to yet again. It seems to make more sense to bas

Can you really forecast inflation? They failed to do so before the whole Russia shit-storm, and they're trying to yet again. It seems to make more sense to base economic policy on finding choke points and vulnerabilities, and addressing them before they get triggered. Wars from without are unpredictable, but you can prepare for the disruption from within. Economic forecasts by contrast seem like soothsaying.

spywaregorilla 4y ago
> Can you really forecast inflation? They failed to do so before the whole Russia shit-storm, and they're trying to yet again. The primary reason they failed was BECAUSE of the Russia shit storm. Predictions about anything are vulnerable to change from new information. That doesn't mean making predictions is a bad idea. It's still the best model you've got.
- ogogmad 4y ago
  > Predictions about anything are vulnerable to change from new information. The problem with predictions is that an event might be 99% likely to happen, but it might still be prudent to consider the 1% of cases where it doesn't happen if that's sufficiently high impact.
  - spywaregorilla 4y ago
    Considering a 1% event doesn't mean the best course of action still isn't to assume the 99% is going to happen. If there's a 1% chance of rain, the expected value of amount of rain is "a little bit of rain" but the forecast is still most usefully described as "no rain".
    - ogogmad 4y ago
      The point is that the magnitude of the outcome needs to be considered. Forecasting is about finding high probability outcomes, while not considering high-magnitude but unlikely outcomes. This makes forecasting sometimes a questionable activity.
      - spywaregorilla 4y ago
        How should the Fed adjust it's policies based on the San Andreas fault, solar storms flaring up electrical wires globally, China invading Taiwan, the Zaporizhzhia nuclear plant in Ukraine suffering a meltdown, a deadly covid resurgence, or zombies? Forecasting is always a questionable activity. All models are wrong, some are useful.
        ogogmad 4y ago
        I don't know how serious these things are, but if the San Andreas fault can tens of thousands of people (I doubt it, but I haven't looked into it), then indeed this becomes the priority. Economic policy should indeed focus on trying to prevent this outcome. And if solar flares can cause a megadeath (and again, I don't know), then this becomes a priority too. Your attempt at proof by contradiction might be a list of things to prepare for. > All models are wrong, some are useful. A forecast that causes you to act overconfidently is worse than no forecast. All models are wrong, but some are worse than nothing.
        spywaregorilla 4y ago
        > Your attempt at proof by contradiction might be a list of things to prepare for. It's not a proof by contradiction. It's showing that there are many long tail risks that are potentially very dangerous but also very expensive to try and prevent. It's not wrong, it's just a really difficult concept. The Fed interest's rate is a single tool that can be moved up or down. What do you do with no model? How do you make decisions? Every decision, including making no changes, is very significant.
- throwaway4aday 4y ago
  Nope, they failed when they didn't put the brakes on when inflation blew past 3%. They were "trying not to shock the market" but they were probably dragging their feet worrying about political blowback. Others were predicting that inflation would stay high and continue to increase along with energy prices. They only acted once it became undeniable that it was never going to be transitory. https://www.forbes.com/sites/adamstrauss/2021/07/30/here-are-six-reasons-why-inflation-will-not-be-transitory/?sh=22148ac59ca8 https://www.forbes.com/sites/adamstrauss/2021/07/30/here-are...
  - spywaregorilla 4y ago
    There is no counterfactual to suggest anything is not transitory independent of the shit that's gone down. And the shit that's gone down has clear and undeniable inflationary effects. That's the short of it.
    - throwaway4aday 4y ago
      Cool story, but just take a look at the 5Y, 10Y or even 25Y chart for US inflation and 2021 instantly becomes a big outlier. Compare it to other inflationary spikes in the 70s or 80s and it's pretty obviously the start of something big. You'd have to be blind or politically compromised to state otherwise. https://tradingeconomics.com/united-states/inflation-cpi https://tradingeconomics.com/united-states/inflation-cpi
      - spywaregorilla 4y ago
        Fortunately there's an xkcd for that https://xkcd.com/2502/ https://xkcd.com/2502/
        throwaway4aday 4y ago
        Not sure if this is a rebuke or an agreement. The alt text seems to agree with me now that we've shown that 2022 is most assuredly not normal, we're going to need a lot more symbols. Seriously though, massive worldwide events have massive worldwide consequences which are very often long lasting. It's also a bit of a no brainer that flooding the economy with even more cheap money on top of supply chain disruptions would result in severe inflation for as long as at least one of those conditions remained. They've finally put the brakes on with beginning to raise rates but they can't control the supply chain so that's likely to keep things in turmoil for as long as it takes for things to straighten out or crash and reboot.

spywaregorilla 4y ago

> Can you really forecast inflation? They failed to do so before the whole Russia shit-storm, and they're trying to yet again. The primary reason they failed was BECAUSE of the Russia shit storm. Predictions about anything are vulnerable to change from new information. That doesn't mean making predictions is a bad idea. It's still the best model you've got.

ogogmad 4y ago
> Predictions about anything are vulnerable to change from new information. The problem with predictions is that an event might be 99% likely to happen, but it might still be prudent to consider the 1% of cases where it doesn't happen if that's sufficiently high impact.
- spywaregorilla 4y ago
  Considering a 1% event doesn't mean the best course of action still isn't to assume the 99% is going to happen. If there's a 1% chance of rain, the expected value of amount of rain is "a little bit of rain" but the forecast is still most usefully described as "no rain".
  - ogogmad 4y ago
    The point is that the magnitude of the outcome needs to be considered. Forecasting is about finding high probability outcomes, while not considering high-magnitude but unlikely outcomes. This makes forecasting sometimes a questionable activity.
    - spywaregorilla 4y ago
      How should the Fed adjust it's policies based on the San Andreas fault, solar storms flaring up electrical wires globally, China invading Taiwan, the Zaporizhzhia nuclear plant in Ukraine suffering a meltdown, a deadly covid resurgence, or zombies? Forecasting is always a questionable activity. All models are wrong, some are useful.
      - ogogmad 4y ago
        I don't know how serious these things are, but if the San Andreas fault can tens of thousands of people (I doubt it, but I haven't looked into it), then indeed this becomes the priority. Economic policy should indeed focus on trying to prevent this outcome. And if solar flares can cause a megadeath (and again, I don't know), then this becomes a priority too. Your attempt at proof by contradiction might be a list of things to prepare for. > All models are wrong, some are useful. A forecast that causes you to act overconfidently is worse than no forecast. All models are wrong, but some are worse than nothing.
        spywaregorilla 4y ago
        > Your attempt at proof by contradiction might be a list of things to prepare for. It's not a proof by contradiction. It's showing that there are many long tail risks that are potentially very dangerous but also very expensive to try and prevent. It's not wrong, it's just a really difficult concept. The Fed interest's rate is a single tool that can be moved up or down. What do you do with no model? How do you make decisions? Every decision, including making no changes, is very significant.
throwaway4aday 4y ago
Nope, they failed when they didn't put the brakes on when inflation blew past 3%. They were "trying not to shock the market" but they were probably dragging their feet worrying about political blowback. Others were predicting that inflation would stay high and continue to increase along with energy prices. They only acted once it became undeniable that it was never going to be transitory. https://www.forbes.com/sites/adamstrauss/2021/07/30/here-are-six-reasons-why-inflation-will-not-be-transitory/?sh=22148ac59ca8 https://www.forbes.com/sites/adamstrauss/2021/07/30/here-are...
- spywaregorilla 4y ago
  There is no counterfactual to suggest anything is not transitory independent of the shit that's gone down. And the shit that's gone down has clear and undeniable inflationary effects. That's the short of it.
  - throwaway4aday 4y ago
    Cool story, but just take a look at the 5Y, 10Y or even 25Y chart for US inflation and 2021 instantly becomes a big outlier. Compare it to other inflationary spikes in the 70s or 80s and it's pretty obviously the start of something big. You'd have to be blind or politically compromised to state otherwise. https://tradingeconomics.com/united-states/inflation-cpi https://tradingeconomics.com/united-states/inflation-cpi
    - spywaregorilla 4y ago
      Fortunately there's an xkcd for that https://xkcd.com/2502/ https://xkcd.com/2502/
      - throwaway4aday 4y ago
        Not sure if this is a rebuke or an agreement. The alt text seems to agree with me now that we've shown that 2022 is most assuredly not normal, we're going to need a lot more symbols. Seriously though, massive worldwide events have massive worldwide consequences which are very often long lasting. It's also a bit of a no brainer that flooding the economy with even more cheap money on top of supply chain disruptions would result in severe inflation for as long as at least one of those conditions remained. They've finally put the brakes on with beginning to raise rates but they can't control the supply chain so that's likely to keep things in turmoil for as long as it takes for things to straighten out or crash and reboot.