Tag Archives: forecasting

Three Videos on Forecasting and Strategic Surprise

Many people are either beginning their  holidays or are already in the midst of them.  If you’re the type of person who  reads a blog like this, you probably already know what you’re hoping to read on your break.

Therefore, I thought I’d try a different approach and offer a summer watching list rather than summer reading list.  This list recommends three videos that you might consider for your travels or during your “down time”.   All address different aspects forecasting, uncertainty, strategic surprises and decision-making.  When you feel like a break from reading, give them a try.

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We have met the enemy and he is, er, forecasting

There is no doubt we are terribly bad at forecasting. Even the smartest among us are. Even the best and the brightest, whom we have tasked to save the world from financial annihilation, are.  Take Ben Bernanke, Chairman of the Federal Reserve. In 2004, he declared, in a speech ominously titled “The Great Moderation”: “One of the most striking features of the economic landscape over the past twenty years or so has been a substantial decline in macroeconomic volatility. This […] makes me optimistic for the future.” You might want to read the full transcript of the “Great Moderation” talk here because it is for a fascinating reading on how wrong experts can be at forecasting. And it’s not just Ben. In fact, political, economic and business histories are littered by forecasts and predictions that turned out to be ridiculously wrong. From the commercial potential of the Xerox machine or of Nespresso, from the possibility of heavier than air flight to the market for mobile phones, from prosperity at the corner of the street to Japan as number One. Our hopelessness at forecasting is a confirmed fact.

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China’s Present, the World’s Future, and the Pretense of Knowledge

Last Tuesday I attended the Economist’s Bellwether Europe conference in London.  Several speakers raised ideas that made me want to follow up Philippe’s latest piece “Has China Peaked?”.

At the conference, many speakers and panelist (from regulators like the FSA’s Martin Wheatley, to economists like Roubini’s Arnab Das, to portfolio managers like Blackrock’s Richard Kushel) linked the future stability of the Eurozone and the prosperity of America to the continued growth of China.  Niall Ferguson was even more explicit, saying at one point that “The governor of the PBOC has far more control over the future of the US and European economies than either Ben Bernanke or Jean-Claude Trichet”.  I tend to agree that US and EU economic stability is tied to Chinese growth, but am worried by that fact,  and skeptical about Chinese “control” of their economy either through their Central Bank or through “administrative measures”.

The People's Bank

The image evoked by statements such as Ferguson’s (even though I am sure he is too smart to have intended it) is of a carefully calculating Zhou Xiachuan sitting behind a desk in Beijing pressing buttons and pulling levers – a man in commanding a linear, essentially Newtonian system.  The same tends to happen when people talk about the powers and actions of the Fed and the ECB.  Even so-called “centrally planned” economies don’t work like that.  Economies are not not machines, and they are not linear in the sense that once the behavior of its component pieces are understood individually, one simply needs to add them up to predict – and control via a Central Bank or other bureaucracy – the behavior of the whole.

A point which is not original but which bears repeating because it is so often forgotten is that Economics is not Physics, it’s a “Social Science” (a false metaphor if there ever was one).  As one scholar says “God gave Physics the easy problems” and the behavior of economies is non-linear rather than additive.

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Has China peaked? An exercise in forecasting using Neustadt and May’s History framework

China has long been touted as the next leading power, and for many it seems that the question is no longer if China will overtake the US but when. Recently, however, a number of dissenting opinions have started to be heard. Economists point to the strong imbalances in China’s economy; political analysts observe that the political and social structure is unstable; human right activists warn of increasing censorship and repression, while historians suggest that, like the USSR in the late 80s, China’s communist regime has run its course and is on an unsustainable path. Indeed, “hard landing” stories about China have started to appear, by Roubini or by Gordon Chang.

Like any such debate, or lack of debate (instead, it is a series of proclamations), positions are often taken being selective about facts, based on false analogies, shallow extrapolations, ideology, or just plain ignorance. This is problematic because regardless of what we think about China, the country does matter to us in many ways. What can we do about this, then?

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