The past is hard to predict

ThinkMarkets features a post arguing with Krugman's NYT column about the fiscal stimulus package. There's a great line in that post, which neatly summarizes an interesting point: "The future is hard to predict. But the past and present are hard to predict too."

The point here is: lots of times you'll notice people thinking that because a certain statement is about the past or present, it must therefore describe hard, indisputable facts (as opposed to statements about the future which are mere "speculation"). This is not true, because many statements about the past implicitly involve evaluating counterfactuals. For example, when someone says "The stimulus has been working," they must mean something like "Thanks to the stimulus, the unemployment rate is now 9.4% whereas without stimulus it would have been 10%." But the unemployment rate that would have been if there were no stimulus is definitely not a "hard fact;" it's a counterfactual. And the answer to the question "What would the unemployment rate be in June 2009 if we didn't have the stimulus package?" can only be obtained in the same way as to the question "What will the unemployment rate be in June 2010?" You have to take a model of the economy, set its parameters to match your question, and then calculate the answer.

For all practical purposes, counterfactuals and predictions are the same thing. So saying "The stimulus has been working" is a prediction too.