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.}
Content
- Weirdness is a signal; don’t ignore it.
- Economic weirdness.
- Our weird wars.
- Climate science weirdness
- Conclusions
- 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:
{In Texas} direct employment in the oil and natural gas industry amounted to 24% of total US direct employment in the industry. It is, therefore, a risk from a housing sector context that Texas currently accounts for 15% of the houses built in America, up from 4% 25 years ago. It is perhaps even a bigger risk to the US economy that Texas accounts for 63% of the jobs generated in America over the past seven years (see Figure 16). Thus, nonfarm payrolls in Texas have increased by 1.25m or 11.9% since the end of 2007, while total nonfarm payrolls in America have risen by 2.0m or 1.4% over the same period.
Prices of industrial commodities (e.g., oil down by half) and shipping (e.g., record low Baltic Freight Index) are crashing. Since the crash, the world has widespread negative real interest rates (i.e., below the inflation rate). Three central banks have set their key overnight rate below zero (Sweden, Switzerland, and Denmark); the ECB loans to banks at negative rates.
All this is without precedent. Few or no economists predicted these things (rather, most expected the opposite). Most economists respond with even firmer belief that these events are consistent with their models; their confidence remains untarnished. Most financial experts pretend that these things are normal and under control. We all pretend that we’re still in Kansas, a consensual hallucination.
For more about these things see this post from October (before the current round of weirdness): Look at the economy. Fight the illusion of normality. Feel the weirdness.
(3) Our weird wars: ignore the record; we’ll win the next one!
Since 9/11 each new conflict begins with high expectations for not just success, but nation-building. Afghanistan, Iraq, Libya, Yemen — our geopolitical experts had few or no doubts about the outcome. Oddly, each country now burns — with fundamentalist (even jihadist) groups gaining strength.
But don’t worry. They’re planning new interventions in Ukraine and Syria — and even Iraq II. They’re confident, so why worry?
(4) Climate weirdness: not just the weather, but the scientists.
On 20 March 2000 The Independent told us that “Snowfalls are now just a thing of the past“. We’ve heard so many of these during the past decade, in various forms (no more skiing, the north polar ice cap melted). Now the newspapers tell us of climate scientists saying that a warmer climate means more snow. Which is fine. Progress in science means overturning past knowledge. But these stories read like something out of 1984, with no mention of the previous opposite predictions (unfortunately for them, the internet has no memory hole).
That’s been the norm since 2000, as confident short-term predictions for stronger storms, more wildfires, more tornadoes, and a warmer surface atmosphere all proved false. That is weird, but means little and proves nothing. The larger weirdness is the failure of scientists, those who boldly made these predictions outside the IPCC consensus in terms of magnitude and confidence, to ‘fess up’. Making new predictions while ignoring failure of past ones has diminished public confidence in the whole enterprise (as so many polls have shown).
Conclusions
Experts benchmark their insights to the past. Periods of rapid change — social, economic, technological (they run together) — upset the assumptions that experts rely upon (often unquestioned assumption, or even unaware assumptions). Frequent failed predictions are markers, telling us that we’ve entered a transitional era with a new world ahead.
Unfortunately, experts’ failures inevitably diminish our confidence in them, while rapid change means we need them more than ever. No matter how bad, their analysis provides better guidance than the equally confident and often more aggressive ignorant people that replace them on the public stage (cue the anti-vaxxers, stage left).
All this will only grow more intense as we accelerate towards the future, like a starship diving towards a black hole. They, like us, can only guess at what lies ahead. Meanwhile, enjoy the strangeness. Don’t let your desire for comfort and reassurance override your sense of wonder.
For More Information
Where to find reliable information sources:
- Suggestions for your daily info diet. You are what you read!
- Economics can help understand events in America and the world. Here’s where to find those answers.
- Tips to find the experts that help you see the world more clearly.
Other posts about experts:
- Experts now run the world using their theories. What if they fail, and we lose confidence in them?
- Do we face a future without confidence in experts?
- Our confidence in science is crumbling. Why? How can we fix this?
- 2015 might bring an end to the great age of experts’ experiments on us.
This is what life feels like:
Most of the people with significant money and power really don’t want to see any weirdness or unpredictability. It’s their reaction I fear more than any initiating change of patterns.
Perhaps the renaissance has ended and we are in the first stages of the new Dark Ages? Rational thought is being replaced with superstition, and fear, among the masses. That actually helps the 1% I think. Until it results in rebellion?
Doug,
Anything is possible! But I believe we’d should get a bit more information before seriously predicting collapse of civilization and a new “Dark Ages.” I don’t see anything implying such an extreme outcome.
The recurrent problem with those metaphoric comparisons is that even a cursory check of historical conditions invalidate the assumption that Renaissance was a period in which superstition decreased with respect to the Middle Ages.
Actually, superstition — especially belief in witchcraft, dragons, possession by evil spirits, and lands populated by chimeras — peaked in the 16th and 17th centuries, and was finally driven out by rational approaches in the late 17th and 18th centuries. Surprising but true. Remember: the vast majority of people lived in the countryside and not in cities, incipient literacy and the printing press made the diffusion of fantastic beliefs easier, and these preceded universal schooling (propagating more rational ideas) which took a long time to get established.
When I think about it, there might be a parallel with the unbridled, still poorly apprehended and ubiquitous digitalization of information in our times, which has greatly facilitated the propagation of fads, misrepresentations, ideologically based fantasy arguments, and outright lies.
Guest,
Thanks for that valuable perspective. My guess — it’s not my field — is that the Renaissance was the start of the rollback of superstition, beginning with the literate classes (which were not the same as the wealthy classes).
For people who don’t remember their dates from school, the European Renaissance was a complex phenomenon (occurring at different places at different times, in different ways). Roughly from the 14th to 17th centuries. See Wikipedia for details.
hidflect: “It’s their reaction I fear more than any initiating change of patterns.”
We have already experienced their reaction. So far it is to do two things, 1) make sure that their part of the world is still doing well, regardless of the damage they are doing to the rest of us and 2) hire experts to tell them that everything is going well.
The Fed released the Survey of Consumer Finances last fall without a comment from the mainstream news. I have kept a copy of every survey since the mid-90’s and the story it tells about the wealth distribution of America is literally horrific. In general, the bottom 95% is worse off than they were 20 years ago, the further you go down the wealth ladder the greater the difference until you get to the bottom rung which barely had any assets to begin with and continues to do so. This trend dates back to well before the housing boom.
On the economic weirdness: I have been keeping private predictions as to how well the economy will do since 2008 and every year I have been more accurate than the professionals. I view this fact with concern rather than pride because they have much larger and much better data than I do and much more sophisticated models and tools.
This persistent inaccuracy implies that their economic models are the cause of their problems and, based on observation, they are not changing their models in spite of the growing evidence that the models are not accurate. Major corporations, the federal government, all of the state governments base their actions on these predictions. This is not a cause for confidence in our leaders.
The weirdness of this year has overwhelmed my model for the reasons FM has noted above and an increasing fear that something strange is happening in China and off the radar screen so my prediction range for 2015 for growth for the US economy is somewhere between -4% and 3%. Frankly, this is useless so I am throwing up my hands and reaching for my dart board to predict future US growth. In these circumstances I prefer to plan for the worst and hope for the best.
Pluto,
(1) “I have been keeping private predictions as to how well the economy will do since 2008 and every year I have been more accurate than the professionals.”
I have been posting roughly forecasts here for years — proven far more accurate than the consensus of economists. It’s simple: I’ve said the US economy was stuck in low gear, with GDP running at aprox 2% – 2.5% per year. The criticism I’ve gotten from the economists I know has been severe. But here we are, still running at ~2 1/4% per year.
(2) “This persistent inaccuracy implies that their economic models are the cause of their problems and, based on observation, they are not changing their models in spite of the growing evidence that the models are not accurate.”
That’s not how science works. As Thomas Kuhn showed in The Structure of Scientific Revolutions (1962), paradigms cannot be disproved. They can only be replaced. New ideas arrive in their own time, not when we want them. Certainly not when we need them.
(3) “my prediction range for 2015 for the US economy is somewhere between -4% and 3%”
Professional forecasters cannot get away with predictions that wide; they must give specific numbers. Your range includes GDP of every year since 2000 except for 2004 & 2005 (peak of the boom).
Also you lower range seem impossible for 2015. The worst year since 1946 was -2.8% in 2008, the collapse of the US real estate bubble followed by collapse of the global banking system. There are no such extreme bubbles to pop now; the cyclical sectors are running at low to moderate levels (i.e., they don’t have far too fall). And you’re predicting something worse. In fact the only years worse than 2008 were in the Great Depression (which took years to get rolling) and the sharp demobilization recession of 1946.
Your lower bound would need something like a meteor strike to do such damage in the remaining 46 weeks of the year, given the current momentum of the global economy (note the improved GDP numbers released today for the Eurozone).
FM, replying to your response:
2) I must gently disagree with your comment although I am not going to argue with Thomas Kuhn. My private ( and more accurate) predictions use a demand-based economic model from the 1950’s. Why are mainstream economists continuing to use more modern but less accurate models?
Krugman recommends demand-based models instead of supply or confidence-based economic models as being more accurate when you run up against the zero boundary. This makes perfect sense because we have a shortage of demand but plenty of goods and money flowing through the system.
3) I agree with your comments completely. As I said, the weirdness of the situation has broken my efforts to model the US economy at a high level. The key issue is determining demand within the US. Major sections of the rest of the world (China, and the Emerging Markets) seem to be suffering some sort of meltdown but the data, particularly in China, are not nearly reliable enough to make such a statement with anything resembling confidence. The other major developed powers (EU and Japan) seem fairly stable but the EU, in particular could have the bottom fall out of it quickly. By contrast there is no similar upside potential for either group, the best they can hope for is more of the same.
If the US can successfully ignore the drop in demand in the rest of the world it could be a good year (at least for the US). If China and the EU sink at the same time it could be a very bad year. But I agree that the -4% growth seems ridiculous. Again, my model is now useless.
3.5) Re: Improved numbers from the Eurozone. I agree the numbers are a TINY amount better than expected but the details are troubling. Germany is doing well, France is barely treading water, Italy is suffering, and Greece is the flushing sound in the toilet. Doing some math shows that rich Germany is doing great but the rest of Europe is barely above stall speed. The most obvious impact of today’s report is that conversations in Brussels will be harder, not easier.
Pluto,
You miss the point about models. The ones being used are the best we have. If somebody knew how to build better ones, they would. It’s a subject on which a significant fraction of humanity’s best minds have worked on. While the results have been too high, we’re talking about a percentage point or less on forecasts 4 quarters out. Let’s not be binary, declaring model results “right” or “wrong” (doing so indicates someone who doesn’t understand models).
I very much doubt that whatever model you are using does better. If so, you can make a lot of money with it. As claims go, it’s the equivalent of saying you can win at roulette, or beat the stock market.
“Snowfalls are now just a thing of the past.“
Try telling that to a resident of Boston. Be prepared to get hit in the face with a snow shovel.
These odd days are described by two words that have become a wry bloggers joke:
Unprecedented, and unexpectedly. But the joke is wearing thin as what is unprecedented includes jack booted police behavior, civic unrest, and high incarceration rates, and what is unexpected includes failures; of currency pegs, of austerity measures, of military interventions, printing by central banks and so on. The weirdness is becoming a feeling of dread that some other shoe will soon drop and when it does weird won’t be the right word.
Peter,
Nicely said. I think you accurately describe how the general public feels. Polls support your view. Equally important is to consider the feelings of the communities at the epicenters of the weirdness.
Note that you describe people feeling quite the opposite of what I see in the community of economists and financial workers. They’re confident, almost euphoric (but I suspect in a weird way, a bit haunted).
I wonder how people in the climate science and military feel.
In the former, I suspect there is widespread despair about the failure of their long campaign to gain much traction with the public (and hence its fading appeal to decision-makers) — plus the climate’s refusal to participate (imagine politics today if we had more heat waves and stronger hurricanes and tornadoes).
As for the military, that’s an interesting subject. See the series running in the afternoon posts. Interesting things happening, although not even the outlines are yet visible.
From outside : A perception of post WWII normality until now, this is a western (or maybe moreso US) thing. Eastern europe (observed) and presumably right across eurasia () – riding the rollercoaster has been the new normal for the last 25 years.
FP,
Thank you for that reminder. The perspective of the FM website is that of the US. Reminders are valuble that conditions elsewhere vary!
The Marxist group at Monthly Review have talked about secular stagnation for the past 40 years. Maybe they’re right about the last 6?!
Socialbill,
Even a stopped clock is right eventually.
Should that be Iraq 3?
Jake,
Should what be “Iraq 3”?
oug p remarks: Perhaps the renaissance has ended and we are in the first stages of the new Dark Ages?
Jane Jacobs certainly thought so in her 1998 book Dark Age Ahead.
But then again, as Mr. Chapel was wont to say in the short-lived 1998 TV series Vengeance Unlimited, “Anything is possible.”
Thomas,
I dislike judging a book by its summary (see below), but this looks like the usual leftist claptrap. I don’t see how all those things in “serious decay”; I suspect she’s comparing them with an imaginary past. It’s a common trope, seeing today’s problems but not those of the past. I very much doubt the developed states are in or near an “environmental crisis” — their environments have greatly improved during my lifetime, and continue to do so. Racism is baked into US culture since the Founding, and has repeatedly emerged as a crisis in cycles.
Publisher’s summary of Dark Age Ahead by Jane Jacobs (2005):
In this indispensable book, urban visionary Jane Jacobs — renowned author of The Death and Life of Great American Cities and The Economy of Cities — convincingly argues that as agrarianism gives way to a technology-based future, we stand on the brink of a new dark age, a period of cultural collapse. Jacobs pinpoints five pillars of our culture that are in serious decay: community and family; higher education; the effective practice of science; taxation, and government; and the self-regulation of the learned professions.
“The corrosion of these pillars, Jacobs argues, is linked to societal ills such as environmental crisis, racism, and the growing gulf between rich and poor. But this is a hopeful book as well as a warning. Drawing on her vast frame of reference–from 15Th C Chinese shipbuilding to Ireland’s cultural rebirth–Jacobs suggests how the cycles of decay can be arrested and our way of life renewed. Invigorating and accessible, Dark Age Ahead is not only the crowning achievement of Jane Jacobs’ career, but one of the most important works of our time.
“I very much doubt the developed states are in or near an “environmental crisis” — their environments have greatly improved during my lifetime, and continue to do so.”
Quite a lot of sources of pollution have been moved overseas. Economically the US is kinda getting by for the time being but in many places in the West the economic deterioration has gone beyond what can be assumed to be a temporary crisis. And in the Middle East one state after the other is falling into anarchy (plenty of conflicts even before but it used to be state vs state), when not in the hands of people whose methods Genghis Khan would be familiar with. If truly China is in trouble…
Marcello,
I do not understand your comment.
(A) I agree that we commonly hear that we have shipped our polluting overseas. I have never seen documentation of that, however. I can imagine a few possible examples, but that hardly justifies the statement.
(B). Most of what you list is not environmental damage (e.g., economic, political instability).