I was shocked when I learned the current economic models don't even account for energy inputs. Supposedly if you decide all energy inputs suddenly stop, GDP is predicted to drop on the order of 5-10% instead of, say, cease to exist
I don't think most typical GDP models are designed for situations were large parts of the population will die. Models are also likely not to be designed to accurately reflect the result of a large nuclear war, for example.
Typical models will account for energy price and elasticity, though, and if you want models for more catastrophic situations then those exist, but it's a different type of modelling.
The problem with economic models is that they remove almost all parameters except a few. But the removed parameters account for like 90% of the outcome.
That's the only way you can create models of something as complex as society. It's way more complex and chaotic than weather and still economists think they can predict months and years into the future.
For smaller economies modelling some months into the future is actually pretty decently possible. Of course, there could always be big events throwing everything in a new state.
That study kind of proves that economics is not a science. Not even the "true" value they want to compare their forecast with is correct. It's also just an estimate. Complete nonsense.
"To assess the quality of the forecasts, they are
compared with the actual GDP figures. Since GDP is
normally revised several times, it is necessary to
decide which figure to take as the outcome. Following the literature, we use the first available estimate
for real GDP growth. In our case, this is the annual
average calculated by the State Secretariat for Economic Affairs (seco) in March of each year on the
basis of its quarterly estimates.2"
The main problem is that GDP can and is defined in so many different ways and massaged and changed to anyones liking.
Same with inflation. It's hard to measure correctly in the first place and becomes even more useless as it is defined differently at every occasion or when it does not match whatever one tries to achieve.
>I don't think most typical GDP models are designed for situations were large parts of the population will die.
This was once an essential consideration in historical times, but never the main thing on the bargaining table even then.
Now it would be the extreme case, but the current system is still designed to handle it.
No differently than when large parts of the population (but not rising to the level beyond a voting minority) are systematically excluded from future ongoing prosperity by periodic debasement and/or devaluation of their labor, and the currency or medium of exchange, credit, and accounting that goes with it.
Never to be heard from again, since they are no longer a part of the economic system like they were the day before.
The current system isn't designed for a shutdown of all energy supplies or quickly losing larger parts of the population. What portions and where of the population are not part of the economic system?
Over the last few years, millions of Americans if not tens of millions who had been on the margins of economic stability, have now been inflated across the divide over onto the slope of economic uncertainty.
It can be a subtle difference since neither one is a very good position to be in.
But it's a slippery slope and those that can get back to where they were will be a result of overcoming a downward force that was not a factor just a few years ago.
And those that do will still not be in a very good position to be in.
For the rest, fuggedaboudit.
I get your point though.
I would say a few million more consumers becoming much further drained doesn't have anywhere near the chilling effect on Wall Street that you would get from a total energy shutdown or losing the same millions in a mass die-off, true. It's just a step in that direction but I do think the same faulty equations would be clung to, long after their unrealistic calculations have compounded beyond recovery. And surprise people at how soon a downward spiral could occur without any sign of immediate threat, since there's no system in place to give any warning until downward momentum has become dominant enough to be well-registered. When it's more likely to already be too late.
With energy the closest thing in memory may be the way oil drilling was cut in half at the end of 1981. That's nothing like a total shutdown but it was significant. It was an emergency, if they hadn't crashed the price, alternative energy would be 40 years ahead of where it is now. Turned out only to be a speed bump for Wall Street and here we are.
This is the real critique of the labor theory of value: Smith and Ricardo regarded nature as effectively infinite and the economy only being powered by people doing things.
Sitting in the ground the coal has no value, when people dig it up and put it in a steam engine it goes from 0 value to the value of whatever got produced.
Where did the coal in the ground come from? Don't know! How much is there? Probably a lot. What happens to the acrid smoke from the steam engine? Goes somewhere else.
EDIT: because I know someone is going to insist that the value of coal in the ground is accounted for in mineral rights: there were none in Smith and Ricardo's day.
> Smith and Ricardo regarded nature as effectively infinite
Clearly Smith was aware of constraints in nature:
A mine of any kind may be said to be either fertile or barren, according as the quantity of mineral which can be brought from it by a certain quantity of labour is greater or less than what can be brought by an equal quantity from the greater part of other mines of the same kind.
> the current economic models don't even account for energy inputs
What are you basing this on?
In power and military planning, one absolutely models the effects of power loss. This is sort of like saying physics is broken because our cosmological models don't account for the telescope breaking.
The economic models are concerned with accurately modelling the impact of normal/expected events/variations. The event you propose is not one worth modelling (being impossible).
Similarly, I was shocked to learn that models of aeroplanes don't even account for the possibility of the plane being blown up mid-flight by a stray anti-air missile.
It seems aerospace engineers are just like priests and counselors in the courts of ancient kings.....
Which aerospace engineering models don't account for those? The intentionally simplified ones, which are mostly used for civilian stuff? Note that about 0.00001% of civilian aircraft are negatively impacted by stray anti-aircraft missiles.
Or the more complex models, typical for military use? Reality: Accounting for damage from weapons, when appropriate, is a really big thing in aerospace engineering. And has been for 80+ years.
Vs. 100% of modern economies have been very negatively impacted by sudden cut-offs of energy supplies (due to coal miners' strikes, naval blockades, the OPEC oil embargo of 1973, etc., etc.).
The core of the analogy made was that economic models rarely account for basically any variables that all other reality-based models have to live on.
Yeah your analogy highlights the silliness of designing for EVERY particular catalyst for failure. But it’d be a better comparison if you were saying it’d be more like if plane builders never considered the possibility at all that they might encounter bad air, an adversarial’s airspace, or engine failure.
But plane builders do a whole lot more in terms of “what if bad thing x happened” than priests, politicians, and economists, maybe not JUST due to the direct, unambiguous impact of failure.
