Black-Box Forecasting

For the past generation, Washington policymakers have based their economic projections on econometric models. Pioneered by Nobel Prizewinner Lawrence Klein of the University of Pennsylvania, the models are a series of equations that use past economic behavior as a guide to future business trends. Economists, for example, are able to predict the effects of a tax cut on new car sales.

Some of the Reaganauts, however, came into office wanting to do things differently. Instead of forecasts that use past behavior as the main standard, they based the economic outlook on how business would perform...

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