The Predictable Folly Of Prediction

Last week, a desperate Europe asked a flush China for cash. It was a big moment. No mistaking that. But what did it mean?

No, this isn’t a column about banking. Or globalization. It’s about something much more important. It’s about the future. And to understand the future, one must begin in the past. In this case, it’s the past of two decades ago.

It was an uncertain time, as usual. The world was thrown into turmoil by the sudden collapse of the Soviet Union. The United States won a war in the Persian Gulf but that morale boost was soon swept away by recession, fears of national bankruptcy, and the seemingly inexorable rise of Japan. The 1993 Michael Douglas movie Falling Down – about a divorced and unemployed engineer who snaps – perfectly summed up the prevailing mood. It was grim.

The book that all the smart people were reading – a New York Times bestseller for months and a Times “notable book” of 1992 – was a look into the global economy of the 21st century.

It would be a competition for supremacy with three contenders, wrote renowned MIT economist Lester Thurow in Head to Head. The weakest was the United States. It would fade. That left two horses in the race. Most experts picked Japan to win, Thurow conceded. And that was certainly possible. But Thurow thought the economic colossus that would dominate the 21st century was Europe.

The United States, Japan, and Europe. They were the only three contenders, according to Thurow.

Thurow did mention China, which was very unusual. Most books about the future of the global economy published at that time said literally not one word about China. Thurow did much better. He devoted two whole pages to it. His conclusion? “While China will always be important politically and militarily, it will not have a big impact on the world economy in the first half of the 21st century …”

I don’t mean to mock Lester Thurow. His views were utterly conventional at the time. Almost anyone who knew anything about global economics thought much the same. The year before Thurow’s book appeared, Jacques Attali – adviser to Fran├žois Mitterrand, banker, European grandee – published a similar book that came to similar conclusions: China and India would be spoils in the great economic battles of the 21st century, Attali wrote, unless they managed to integrate themselves in the global economy – but that would take “a miracle,” so forget it.

But the miracle happened. And last week, a desperate Europe asked a flush China for cash.

Twenty years ago, who predicted a future that looked like that? No one. Europe begging China? That would have sounded like a particularly hallucinatory scene in a Kurt Vonnegut novel. Even a decade ago, it was material better suited to The Onion than the New York Times.

But it happened.

One would think catastrophic predictive failures like this would teach people to be a little more cautious about peering into the future. But they never do. When Lester Thurow wrote Head to Head he knew perfectly well that history is littered with failed predictions. That’s how he began the book. Look at the 1960s, Thurow wrote. Lots of experts thought the economy of the Soviet Union would overtake that of the United States, so it’s easy to get this stuff completely wrong. But Thurow would be clever and careful. And completely wrong.

Foreign Policy magazine did something similar recently. In a special issue devoted to forecasts, it had an essay summarizing a long list of failed predictions. Then there was a series of articles predicting the politics, economics, and technology of 2025 – most of which were written in the confident tone that makes futurist writing so hilarious to read in hindsight.

Like Homer Simpson stepping on the same rake over and over, and getting smacked in the head time after time, we keep making the same mistake. The explanation for this astonishingly dumb behaviour primarily lies in psychology, as I explained my book Future Babble. We have a fundamental aversion to uncertainty. To acknowledge that we simply do not know what the world will look like in 10 or 20 years is not only dissatisfying, it’s disturbing. And so, even though everyone agrees, in the abstract, that long-term, big-picture prediction is impossible, we keep listening to experts who make long-term, big-picture predictions and we form strongly held opinions about the long-term, big-picture future.

Of course the United States and Europe will continue to decline. Of course China will dominate the global economy of the 21st century. It’s obvious, isn’t it? Sure it is. Just like it was obvious in 1992 that we should teach our kids to speak Japanese.

This is not a mistake without consequences, as a new report for the Pentagon makes clear. “The U.S. military relies on prediction to forecast needs and influence the design of major equipment,” writes Richard Danzig, former U.S. secretary of the Navy. “However, both the experience of the Department of Defence and social science literature demonstrate that long-term predictions are consistently mistaken.” Result: huge amounts of money wasted and an organization that constantly struggles to deal with challenges it didn’t see coming.

Danzig called on the Pentagon to assume “that longer-term predictions (that is, forecasts of situations years or even decades out), however presently credible, will probably prove wrong.” The focus must shift to preparing for an unpredictable future – by emphasizing adaptability, making creative use of diversity and competition, and other essential steps.

Not that Danzig expects the Pentagon to entirely do away with long-term predictions. “The propensity to make predictions – and to act on the basis of predictions – is inherently human,” he writes.

But so is the capacity to recognize our biases and limits. And to restrain ourselves accordingly.