Actuarial Model of the Economy

An actuarial model of the U.S. economy would be probabilistic, demographic, holistic, complex, and actuariall sound. It would incorporate Enterprise Risk Management, Dynamic Financial Analysis, General Linear Modeling, Econometrics, and Complexity Science.

Who cares?

Well, the global and U.S. economies are on their deathbeds, the environment is collapsing, we are running out of resources, and the demographics of upcoming generations is unsupportable by existing institutions.

Unless somebody in Washington realizes that the analytical tools being used to evaluate public policy initiatives are outdated, and prone to misdiagnosis, (how do you think we got here?) all the "geniuses" in the world (Summers, Geithner, Goolsby, Clinton, Kudlow, Welch, Bernacke, Volcker...) will fail.

Demonstrating a model which will supplement and transcend the impossibly complicated financial and economic models currently in use is not realistic on a blog.

The basic outline of such a model, however, can be attempted.

The modeling team will consist of physicists, mathematicians, economists, computer scientists, financial engineers and actuaries with a mix of management, technical, and public policy expertise.

Such a team does not currently exist as such.

The model input will be as much detail about the federal budget and national economy as is deemed feasible and useful. It will be enough data to see all the major interactions which occur as a result of government activity but not so much as to be analytically unworkable.

The analytics will be a mix of traditional econometric and financial models supplemented by advances in actuarial science, complexity science, data-mining and visualization, and computer processing which have thus far not been utilized in public policy modeling.

The output will be impact by area by time frame by uncertainty level of alternative government actions. For example, if $100 million of government largess is to be bestowed upon the "auto industry", the impact on all areas impacting and impacted by the auto sector will be shown under various scenarios.

If $100 billion is to be allocated to the "financial sector'" the various ways that the money can flow through the economy under various economic scenarios can be tested. That allocation can (to some degree) be targeted to have the desired impact on national welfare.

For more information, go to my website, paradigmactuaries.com.

Lee