Tag Archives: forecasts

Embrace the weird news. It signals the transition to a new world.

Summary:  Every day brings new strangeness in the news. It’s easy to become disoriented (I am). The weirdness is a signal telling us that we’ve left the post-WWII era and begun the transition to a new world. Here we discuss three areas of oddness — and how to cope.  {1st of 2 posts today.}

Keep calm and trust the experts/

Content

  1. Weirdness is a signal; don’t ignore it.
  2. Economic weirdness.
  3. Our weird wars.
  4. Climate science weirdness
  5. Conclusions
  6. For More Information

(1)  Weirdness is a signal; don’t ignore it.

Much of the best content on the FM website during the past 8 years has been the forecasts, which have proven quite accurate. You have not seen many lately, since events have completely disoriented me. While searching for solid ground I realized that the weirdness of events is the signal — not the noise. As I have said since 2007, the post-WW2 world was ending and a new world emerging. This weirdness is a natural effect of the transition, just as it was from late 1920s through 1940s.

A side effect of this is the increased fallibility of experts. As the saying goes, accurate predictions are difficult — especially about the future. During periods of regime transition the difficult becomes almost impossible. As we see in our daily news. Here are just a few of the many examples of weirdness in the news.

(2)  Economic weirdness

A February 2 report by the San Francisco Federal Reserve stated what’s long been obvious: “Since 2007, Federal Open Market Committee participants have been persistently too optimistic about future U.S. economic growth.” Forecasts by economists in the private sector have been equally or even less accurate.

Since 2009 they have expected the economy to accelerate back to “normal” (i.e., pre-crash) levels. Remember talk of the “V-shaped” recovery? GDP in 2014 was 2.4%, within the range of the previous 4 years (2.5%, 1.6%, 2.3%, 2.2%).

As usual since the crash, 2015 was to be the break-out year. Unfortunately, it’s starting slow and slowing (e.g., retail sales down in Dec & Jan; manufacturers’ new orders down in Oct & Nov & Dec). The negative effects of the oil & natural gas price crashes have barely started (e.g, corporate bankruptcies, massive layoffs). As Christopher Woods of CLSA explained in his Feb 12 report:

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Tips to find the experts that help you see the world more clearly.

Summary: Today’s post continues our discussion about experts. Here are a few tips to help distinguish reliable and useful experts from those that dominate the news media, plus some warnings.

“For now we see through a glass, darkly.”
1 Corinthians 13:12

“Nature is objective, and nature is knowable, but we can only view her through a glass darkly — and many clouds upon our vision are of our own making: social and cultural biases, psychological preferences, and mental limitations (in universal modes of thought, not just individualized stupidity).”

— Stephen Jay Gould, Full House (1996)

How to pick out the real experts?

How to pick out the real experts?

We can only understand the world — even imperfectly — by seeing it through the eyes of experts. Journalists showcase experts, usually a selected coterie (note how the same few show up repeatedly in a newspapers’ article on each subject). Unfortunately, journalists’ criteria for choosing experts don’t well meet our needs. The catchy sound-bites they favor tend to come from the over-confident and arrogant, especially those that endorse the current narrative. Caveats, uncertainties, and long explanations — these are things seldom found in the news.

How can we find better sources to rely upon? How can we use them most effectively?

Evaluating experts

In my experience, one hallmark of a reliable expert is their recognition of uncertainty. The experts I trust recognize how quickly the world changes, its complexity, the severe limitation on the data we have about it, and the crude state of our theories.  These traits distinguish headline-grabbing experts from economists like Nouriel Roubini, Brad Delong and Paul Krugman, physicists like Robert Hersch, climate scientists like Roger Pielke Sr and Judith Curry, and others.

How they grapple with uncertainty makes them more interesting to read, in contrast to the boring black and white certainties that dominate the news.

These experts have another useful characteristic distinguishing them from journalists’ favorites: they admit errors. Half of what we know is wrong, and top experts work to find which of their beliefs lie on each side of that line. From example, Brad DeLong (Prof Economics, Berkeley) runs posts about “smackdowns” of his work, which practice I copied in the Smackdowns page (top menu bar). Krugman often runs columns about his errors.

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We must rely on forecasts by computer models. Are they reliable?

Summary: Computer models have opened a new era across the many fields of science. Our confidence in their forecasts has opened a new era in scientists’ ability to influence public policy. Now come the questions. How can we determine the accuracy and reliability of these models, knowing when their forecasts deserve our confidence? What can make them more useful?  {1st of 2 posts today.}

“The criterion of the scientific status of a theory is its falsifiability, or refutability, or testability.”
— Karl Popper, Conjectures and Refutations (1963). Thomas Kuhn.

“Probably {scientists’} most deeply held values concern predictions: they should be accurate; quantitative predictions are preferable to qualitative ones; whatever the margin of permissible error, it should be consistently satisfied in a given field; and so on.”
— Thomas Kuhn, The Structure of Scientific Revolutions (1962).

Forecasting with models

About predictions

Thomas Kuhn explained that predictions are the gold standard that often decides the winner between competing scientific theories (“paradigms”). The Structure of Scientific Revolutions described failed predictions that undermined the current dominant paradigm (the Michelson–Morley experiment) and successful predictions that helped establish new paradigms (the orbit of Mercury).

With the increasing prominence of science in public policy debates, the public’s beliefs about theories also have effects. Playing to this larger audience, scientists have developed an effective tool: computer models making bold forecasts about the distant future. Many fields have been affected, such as health care, ecology, astronomy, and climate science. With their conclusions amplified by activists, long-term forecasts have become a powerful lever to change pubic opinion.

Unfortunately, models are vulnerable to confirmation bias in their construction and selection (a problem increasingly recognized, for example in the testing of drugs). Equally problematic are issues of measuring their reliability and — more fundamentally — validation (e.g., falsification).

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Winter Storm Juno warns scientists not to burn away their credibility

Summary: We expect our leaders, and the scientists they consult, to warn us of threats. As NYC learned, again, that’s difficult to do. Should they error by warning too aggressively (false alarms), or too conservatively (fails to warn)? The consensus favors the former, ignoring the potentially massive cost of crying “wolf” too often. Someday you warn, but nobody listens. Loss of public confidence in science might be the big risk to avoid.

“To be persuasive we must be believable; to be believable we must be credible; to be credible we must be truthful. It is as simple as that.”
— Journalist Edward R. Murrow, testimony as the Director of USIA before a Congressional Committee in May 1963.

The Day After Tomorrow
January has not yet ended and already we’ve had two waves of climate fear.  Last year we had only one, last Spring’s fear barrage about the coming super monster El Nino (that never appeared). 2015 began with reports that the “sweltering” 2014 was the the “hottest year ever” (eventually walked back to “perhaps”). This week we had the “snowpocalypse”.  It’s weather porn, collusion between publicity-hungry scientists, click-bait-seeking journalists, and activists.

But beneath the hype there are serious issues for climate scientists and our weather agencies. When and how do they issue warnings? Should they prioritize warnings — minimizing the number of times they failure to alert the public — or preserve their credibility by minimizing the number of false warnings?

The Snowpocalypse: the aftereffects might be bigger than the effects

New York City and NY State took strong precautions before the storm which so many meteorologists warned would be “historic”. In fact it largely missed NYC, hitting to the North.  Weather.com shows the records for New England, sloppily not stating the length of the record. The Boston Globe did better: NYC had the 6th largest snowfall in past 80 years. Update: these records are comparable only for roughly the past 20 years due to changes in measurement methods.

Now comes the aftereffects: TIME blamed Governor Christie and Mayor de Blasio for over-reacting, seriously inconveniencing NYC’s people — at a large economic cost.

The AP does an autopsy on the forecasts:

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2015 might bring an end to the great age of experts’ experiments on us

Summary: Beam us down to Earth on 31 December 2015. What will we find? My guess is that the massive experiments now underway by experts will have borne fruit, and we’ll know if they were sweet or poisoned. Interesting times lie ahead, and none can say how they will end.

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Crystal Ball

Contents

  1. The age of experts’ experiments on us
  2. Warnings of Climate Change
  3. Economics: monetary and fiscal magic
  4. For More Information

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Photo from the Star Trek episode “Miri” – The landing party arrives in response to a distress call. Experts on the planet have run a massive experiment to produce a better world. Looks like it didn’t end well.

TOS: "Miri" - Landing Party

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(1)  The age of experts’ experiments on us
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The 21st century has seen some of the largest experiments ever by experts, different from the often-mad amateur experiments that shaped so much of human history (e.g., the French and Russian revolutions, the Fascist social “engineers” in the 1930s, the 1970s Khmer Rouge in Cambodia). Some have run to completion, such as the US military’s expeditions to Iraq and Afghanistan — using the techniques of COIN to defeat local insurgents and build new western-style nations (quite mad given the history of almost total failure since WWII by foreign armies fighting insurgents). Other and larger experiments continue running. Let’s look at two of the biggest.

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The good news in our past gives us reason for confidence about our future

Summary: The FM website discusses problems and proposes solutions. On holidays we interrupt our regular (somewhat depressing, hopefully inspirational) service to bring you something different. Today and tomorrow we’ll have good news! On Friday it’s back to usual, showing how the current wave of protests about and by the police is good news (but only for the 1%).

“For the world is changing: I feel it in the water, I feel it in the earth, and I smell it in the air.”
— Treebeard, speaking in Tolkien’s Return of the King

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The future
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On the day before Christmas let’s give thanks for what we have. Humanity was born naked and ignorant, bereft of either armor or weapons, on Africa’s Serengeti Plains. We have survived droughts and floods, an ice age and a supervolcano — steadily leaning and developing our strength.  For perspective consider this early Holocene Sci-fi, as written by Pat Mathews:

  • Shaman:  I have foreseen a time when everybody can have all the meat, fat, and sweet stuff they can eat, and they all get fat.
  • Chief:        You have had a vision of the Happy Hunting Grounds.
  • Shaman:  It is considered a great and horrible problem! People go out of their way to eat leaves and grass and grains, and work very hard to look lean and brown.
  • Chief:        You’ve been eating too many of those strange mushrooms, and are seeing everything backward.

We have accomplished great things in the developed nations (with the emerging nations accelerating to catch up): ended slavery, created democracies, and brought rights to the poor, minorities, and women. Above all, our technological progress has created so many singularities (e.g., fire, writing). Consider Dodge City in 1877. Bat Masterson is sheriff, maintaining some semblance of law in the Wild West. Life in Dodge is materially only slightly better from that in an English village of a century before. But social and technological evolution has accelerated to a dizzying pace, and Bat cannot imagine what lies ahead.

Let’s see the year 1877 through the eyes of Bat Masterson …

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Lessons from WWI about “markets” ability to see the future

Summary: Brad Delong (Prof Economics, Berkeley) reminds us that on this day in 1914 the NYSE ended the longest period of stopped trading. The outbreak of war on 31 July triggered “the longest circuit breaker” in NYSE history. His post, as usual, gives an interesting account of that episode. Who closed the NYSE, and why? There is another lesson from this history, one of importance to us today.  (This is the second of 2 posts today)

Expect the unexpected: fish

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“Unless you expect the unexpected you will never find truth, for it is difficult to discover.”

— Heraclitus, the pre-Socratic “Weeping Philosopher” of Ionia

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Stock market strategists and economists often tell us about markets’ fantastic predictive ability (an emergent phenomenon from millions of investors), often to the extent of referring to stock prices as a barometer of economic health. Count me among the skeptics when it comes to forecasting.

Here’s a survey of risks by Nial Ferguson (Prof History, Harvard), typical of those before the 2008 crash. He doesn’t even mention the structural weakness of banks, the factor converting a real estate downturn into a global crash. But then nobody saw this (that I’ve found).

Even in what investors should see best — economic cycles — their record is mixed. Sometimes the market gets it wrong; the October 1987 crash predicted nothing. Sometimes the market sees things a little late: the Great Depression began as the US economic downturn began in August 1929; the stock market crashed on October 29 (timeline here).  Sometimes the market gets it right: the stock market peaked on 9 October 2007, the recession began in December, the economy crashed in Fall 2008 (timeline here).

Geopolitics have an immense effect on markets. Here economists have very poor record of forecasting, although they often see themselves as bookies of geopolitics (they tend to be hawks, which is odd given the horrific history of war’s effects). Likewise, investors poorly assess geopolitical threats. On this 100th anniversary of WWI let’s see how well investors anticipated that climatic event (timeline here).

In hindsight WWI looks almost inevitable. Historians see its origin in two decades of rising geopolitical tensions among the major western powers as William Lind explains. Yet investors back then didn’t feel rising tension. For a scholarly yet readable account I recommend Nial Ferguson’s “Earning from History? Financial Markets and the Approach of World Wars” (Brookings, Spring 2008), which provides the quotes below. An assassin killed the Archduke Franz Ferdinand of Austria on June 28. In the following month stock prices declined throughout the western world. Prices of US railroad and industrial shares dropped 15%. The Vienna stock market crashed on  July 13.

Although selling spread of stocks and intensified, investors in most assets in the so-far unaffected nations remained calm (the bond markets dwarf stocks in size). Similar crisis had been resolved through diplomacy. Europe had not experienced widespread war for a century.  Compelling analysis by experts such as Jan Gotlib Bloch (Is War Now Impossible?) and Norman Angell (The Great Illusion) proved war to be irrational and hence unlikely.

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