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Can you believe that Henry Kaufman -- the famous economist of the 1970s and 1980s known then as "Doctor Doom" -- is still around, and still dispensing jeremiads against the sins of debt? It's true (just check this morning's Wall Street Journal op-ed page). But as he criticizes the Fed for not doing something or other to rein in sinful debt (it's not clear just what he'd recommend, only what he'd recommend not doing -- which is what they are doing now), he does make one point with which I heartily agree. The Fed's reliance on bogus econometric models must end:

The third leg of the Fed's policy stool -- heavy reliance on an econometric model -- is also wobbly. Such models are formulated on the basis of past economic and financial variables that do not adequately incorporate structural changes in business and financial behavior. Their underlying economic equations and statistical projections offer, for the most part, false comfort. The econometricians trained in this kind of model building, some of whom shape economic policy, should understand the limitations. Instead, they seem to have become entranced by their own magic.

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