August 29th, 2007, 11:48 am
Why are these responses disappointing? Economics has shown a very poor track record in forecasting. The structure of the models are debatable, the coefficients in the models are unknown, and the tendency of the world economy to spawn new macroeconomic connections means that old models and coefficients are obsolete before the ink is dry on the working paper. As they say, economists have predicted seven of the last five recessions.Even forecasting the price of a single commodity, e.g., oil, is well nigh impossible. I was talking to a forecaster at Exxon and he said the company explicitly doesn't try to predict oil prices because they know they can't do it. If anybody has the real-time data and billion-$ incentive to forecast prices, it be somebody like Exxon. (And if they could forecast prices, then they could dump the dirty and costly business of extracting it to focus on making zillions on the commodity markets).I guess I agree with Nazzdack on this one. Although it is useful to consider the scenarios you presented, the likelihood of picking the right one is very low and therefore the effort is trying to pick the right one isn't well spent. I do notice that the vast majority of the scenarios lead to increasing commodity prices. Only alternative #1 (slow West leads to slow East) leads to a drop in commodity prices. And even this is debatable when you consider that China is becoming a consumer nation in its own right. At some point, internal economic growth will mean that China does not need as much exports -- the low-labor-cost interior will "export" its goods to the high-consumer urban areas on the coast. At some point the 10% growth rate of China will more than offset a 1% or 2% decline in the growth rate of Western countries.