REPLY SD model of the US Economy (SD6916)

[SDMAIL Bill Rathborne]

Posted by  Bill Rathborne <brathborne at sympatico.ca>

For at least the past three years, economic commentators where I live 
(Ontario, Canada) were expressing grave concerns about the U.S. 
sub-prime mortgage market and that it was a time-bomb with a specific 
schedule - which happened right on time. I leave it to one's imagination 
why the U.S. economic press chose to ignore it!

> Such a model would almost certainly contain some of the "soft" variables

Which, in this case, would need to build in "soft" variables of the 
impact of unfettered cowboy capitalism, greed (is good!), and political 
corruption on a massive scale. (A fancy SD model was not necessary to 
see this coming.)

> I am assuming
> that government policy makers and some academics (perhaps in economics)
> have built and maintain econometric models. Not quite the same as SD
> models, but could be a starting point.

I recall years ago Scientific American published a wall-chart, "The 
input-Output structure of the U.S. economy". It was an informative 
chart, although a static picture.  Certainly a dynamic model that 
incorporated a significant portion of mortgage loans, made to families 
that could not afford them, defaulting when they came up for renewal, 
might have raised some red flags. However, there is more than enough 
evidence to suggest that there was a willful intent to ignore the problem.

>  There are so many possibilities it is
> hard to believe this has not been done already.

The S&L collapse, Worldcom & Enron, and now - Surprise! - mortgage 
meltdown, have all been the consequence of ideology and massive 
corruption. Modeling can, in theory, incorporate the consequences. 
However, it won't prevent the "next time" from happening. In other 
jurisdictions where appropriate regulatory regimes have been maintained 
these have not happened. SD, and all sorts of other economic/statistical 
techniques can rarely prevent or predict outright fraud, a little 
diligence can.

Bill
Posted by  Bill Rathborne <brathborne at sympatico.ca>
posting date  Sat, 12 Apr 2008 14:11:03 -0400