In most cases of macro forecasting, historical evidence (data) is and must be the starting point for arriving at a forecast. The fundamental problem with contemporary economics is that historical evidence is not only its starting point, but also its terminus. Why has economics become so data-driven? Underlying today's historicist bias was a very important theory that permeated economics in the 1970-2000 period. This was the theory of Rational Expectations developed largely at the University of Chicago under the influence of Professors Sargent and Lucas. They wanted an absolutely rigorous (mathematical) theory on which market analysis could be based. Given the mathematical difficulties in creating their theory, they had to introduce an innocent-sounding axiom widely known as "Rational Expectations". This assumption was tantamount to saying that the dynamics of the economy were "stationary". This is the statistical term for saying that its dynamics and underlying relationships do not change over time. This in turn says that the correlations unearthed via data analysis will never change. All this implied that there was absolutely no reason for investors to doubt the conclusions based upon historical data for the best theory available said that structural changes in effect did not exist. But the fact that structural changes do exist and that historical data are often of limited relevance presents a major opportunity for investors seeking to outperform others. We can develop superior inferences about the future by using historical data as a starting point, and then incorporating new theories as to how ongoing structural changes will alter forecasts based upon historical data. To arrive at superior macro forecasts, these theories must be causal in nature. Unless they are causal, they cannot explain why historically-based theories will fall short. Another way of saying this is that investors seeking higher returns from better forecasts must think their way to such forecasts. - Dr Woody Brock, SED on Portfolio Construction Forum