The Quant's Problem

Every now and again it looks very much like some famous pundit is reading these missives and producing a clone. It seems that the NYT has a standard for the printing of op-ed pieces (at least, in the deadtrees version), which includes putting the lede sentence in tall italics in the midst of the text. Such happened in Krugman's last column. Here's the sentence that I couldn't avoid:

It's hard to make plans when the rules keep changing.

A recent bugbear in these here parts is that quants keep stepping on the same banana peel: predictions made from quant, rather then specific events, require that the data generating process remains stable over the time horizon of the prediction. Those skyrocketing home prices really were inherent in the decades long mortgaging process. We know that the 1% have been putting all that TARP, QE, and tax giveaway into Treasuries. This was true under Obama, who the CxO class saw as a pawn of the Right Wingnut Congress. Now they look at The Manchurian President and wonder what cockamamie order will happen next.

[Y]ou need some assurance that the rules of the game will be stable, so that whatever investments you make now aren't suddenly make worthless by future shifts in policy.

God's rules are, if nothing else, stable. Those of our stable genius, not so much.