Economic Modeling

Charles Goodhart, a distinguished LSE Professor, famously noted: "Any observed statistical regularity will tend to collapse once pressure is placed on it for control purposes".
This informative text is from Wikipedia. One important application of the critique is its implication that the historical negative correlation between inflation and unemployment, known as the Phillips Curve, could break down if the monetary authorities attempted to exploit it. Permanently raising inflation in hopes that this would permanently lower unemployment would eventually cause firms' inflation forecasts to rise, altering their employment decisions.For an especially simple example, note that Fort Knox has never been robbed. However, this does not mean the guards can safely be eliminated, since the incentive not to rob Fort Knox depends on the presence of the guards.In other words, with the heavy security that exists at the fort today, criminals are unlikely to attempt a robbery because they know they are unlikely to succeed. But a change in security policy, like eliminating the guards for example, would lead criminals to reappraise the costs and benefits of robbing the fort. So just because there are no robberies under the current policy does not mean this should be expected to continue under all possible policies. Likewise, just because high inflation was associated with low unemployment under early-twentieth-century monetary policy does not mean we should expect high inflation to lead to low unemployment under all alternative monetary policy regimes. Although Goodhart's law has been expressed in a variety of formulations, the essence of the law is that once a social or economic indicator or other surrogate measure is made a target for the purpose of conducting social or economic policy, then it will lose the information content that would qualify it to play such a role.
As I stand near the banks of the flooded Mississippi River, I hear the waves lapping at the banks like a dog lapping water. Gawkers come to the river eyeing the unknown muddy waters. They stare for 5 or 10 minutes then sag their shoulders and walk away. I have loosely construed Goodhart's Law to the flood. Any attempt to control the ecosystem will result in failure.