World Academy of Art & Science

Missing Variables & Recommendations for National Data Systems

     There is an urgent need to address all of the topics listed in this section. The world's national macroeconomic data systems were built for the steel plant/manufacturing national economies of the 1930s and the variables appropriate to that era. However the predictive power of each of the 60+ (US) macroeconomic models based on these government data systems has been decreasing since the 1990s, and the error rates have been increasing. Not surprisingly, none of the major public models forecast the current national/global recession or its depth.
 
     I am attaching a supporting letter from Robert Reischauer, former head of the Congressional Budget Office (US), who has been a leader in recommending the kinds of projects indicated in this topic. He recommends a national solution but, in truth, we do need a global framework: just upgrading one nation's data system, even the US, will not be enough. Reischauer is a member of the Executive Committee of Harvard's Board of Overseers and well-connected in the US: this rethinking project is not on the To Do list of people doing 24x7 Emergency Room operations and would be a good project for WAAS.

     Happily, there could be excellent sources of scientific advice and support from hedge funds: The successful managers of "smart money" invest large sums to buy additional data and build better forecasting models, beyond what is available in public data systems to investors and academic scientific modelers. Then, they bet trillions of dollars in complex options/future trades that exploit their statistical edge.

     The top four hedge fund Presidents each earned $1 billion+ last year (and many more earned nine-figure salaries), even as the recession was underway for everyone else, because they already recognize the wisdom in this topic and have done (private) work to obtain a competitive edge. . . . The practical implication is that, like arms races, so many hedge funds may be investing in the same private data that they are willing to transfer part of their older knowledge and these costs to governments, and expand public data systems and public scientific progress. [And Asian hedge funds and Sovereign Wealth Funds (with several trillion dollars - China, Singapore, Arab oil countries) might support better public data systems from the G8, etc.] Some quiet discussions via a WAAS project could be very useful.