Sunday, August 19, 2012

Trending is dangerous

Niall Ferguson is horrified at the prospect that total Chinese GDP will catch the US in 2017.  Let us leave aside for a second the fact that if China's total GDP matches the US', its people will still be less than 1/4 as affluent, or the fact that maybe it would be a good thing if the most populace country in the world had living standards comparable to ours.  So far as I can tell, his 2017 projection comes from assuming growth in China will continue over the next several years at the same pace it has experienced since 1989.  Such projections are always problematic.

Let me give one example.  From 1890 until 1920, Los Angeles population grew by about 11 fold, from  50 thousand to 576 thousand.  If one assumed that this would continue, Los Angeles' population 90 years later, in 2010, would have been 576,000*11^3, or about 766 million, which is a shade under the population of the entire Western Hemisphere.  Its actual population is around 4 million.

Is this absurd?  Of course.  But I have been seeing similar forecasts based on similar foundations since I was in college (when a very well-known professor projected that the USSR would have a larger economy than the US by the year 2000).    This kind of "analysis" has been driving me crazy for years.

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