Wednesday, 1 October 2008

I Predict More Predictions

If you’re not well, one of the first things you'll want to know is when will I get better? It's human nature to ask how long your suffering will continue and when respite will eventually arrive. To get an accurate answer, you can ask a friend or relative who has experienced something similar. Or if it’s a more unusual condition, you are entitled to ask a doctor, search the internet or read a medical book. You can also seek a second or third opinion, or pay a fortune to a specialist.

But what if the truth is no one knows. Are you happy to be fobbed off or accept the discomfort of uncertainty?

Whenever you ask someone for a forecast, you are making a fundamental assumption that they know something you don’t. They have superior knowledge, or intellect, or expertise or machinery that allows them to analyse a bunch of possibly complex factors, or variables and then make a prediction. However, an assumption is a terribly dangerous thing. During the Vietnam War, a sign was kept nailed above a particular marine commander’s desk which said: “Assumption is the mother of all f***-ups.” Those seven words should be nailed above the desk of every Prime Minister and President of the United States, especially now.

A fortnight ago, I was watching BBC24. A Wall Street financial analyst was asked to comment on the latest bit of terrible news to hit the markets. He did a proficient job before being asked “and how much longer will this all go on for?” Without any hesitation, the analyst gave some half spun yarn about matters getting worse before they got better and concluded everything would be fine within the next couple of years. I shook my head. To be fair to the BBC interviewer, he was, as noted above, merely seeking respite to an ever worsening financial situation. And, while we’re at it, in fairness, the Wall Street analyst is a highly paid talking head whose business is to provide economic forecasts. But his business is a foolhardy and arrogant one. For the truthful answer to the interviewer’s final question was, “I’m afraid I don’t have a clue” Unpalatable but true.

A few weeks ago, my September 12 blog “Thoughts on Eastenders and the Credit Crisis” was considered for publication by the Legal Gazette. However, the editorial team wanted the following removed:

“Expert” predictions in newspapers are ten a penny and usually completely worthless. The truth is absolutely no one knows how long this unholy mess will drag on for. Indeed, for all we know, it could continue for at least another decade. Accurate forecasts are virtually impossible due to the complexity of the issues involved and the consistent possibility of unforeseen random events that can powerfully affect the economy.”

It is fairly obvious why they found this paragraph distasteful. Newspapers, magazines and documentaries thrive on “expert” predictions, notwithstanding the fact that the vast majority of “experts” could not predict a snowstorm in the Arctic. (However, I should add, another professional journal, Estates Review, agreed to publish the article in full.)

Interestingly, the Council of Mortgage Lenders finally became aware of the sheer uselessness of making housing predictions after all their forecasts were rapidly disproved. Finally and incredibly, on the 24 September, they admitted that house price predictions were “futile”.

Let’s be clear, there are some things that can be predicted in newspapers – they are good at getting cinema and theatre viewing times correct. But social, economic and housing matters, to name just a few, are complex and variable fields and no mortal can accurately foretell their long term future. How many people predicted 9/ll, the First World War, 1987 Black Monday, or even the rise of the personal computer and internet? Extremely few.

The credit crunch is a crisis that continues to unfold rapidly but no one knows where it will lead or when it will be resolved. Let us have some humility and accept this. For all we know, the crisis could lead to world war, another holocaust, the destruction of capitalism or the coming of the Messiah. We don’t know. We just don’t. But there is one thing I can confidently predict – more predictions.

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