The horizon is not so far as we can see, but as far as we can imagine

A Few Words On Prediction

Prediction usually boils down to figuring out essentials.

I’m committed to finding out the 20% which explains 80%. Despite what one might think, that involves quite a lot of work, I’ve read thousands of books over the years, and don’t just get my info on twitter and from news media but I often cover current events and that requires current info, not carefully thought out books. (As an example, I’ve read books on Hezbollah.)

I find a few determined priorities/ideology/power + resource constraints tend to create most apparent complexity (most, not all.) Complexity is mostly in execution, not in ideation or decision.

Much of Fed rate policy from 79 to the 00s, for example, can be explained by a simple commitment to crush wage based inflation. Add in a commitment to increase asset prices and you have two theses which worked very very well predictively at the time and which still have a great deal of utility.

A reading of Bernanke’s academic work showed that much of it boiled down to “how do we avoid an FDR after a major financial crisis?” When the financial crisis hit, he put his beliefs to work.

That the innovation base moves to the place with the manufacturing base is another important dynamic, and that comes from books. (In particular, “Wealth and Democracy” by Kevin Phillips.)

Find the key drivers/commitments. Understand the world view and ideology. Understand historical and group dynamics. Those are my commitments and that’s how I approach understanding the world, groups, nations, and making predictions.

I’ve been working at this since about 1990. I’m not a great writer, I’m someone who’s interested in how societies work.

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  1. StewartM

    A reading of Bernanke’s academic work showed that much of it boiled down to “how do we avoid an FDR after a major financial crisis?” When the financial crisis hit, he put his beliefs to work.

    Or, “let’s not shoot ourselves in the foot by actually believing in the nitwit ‘personal responsibility’ propaganda we proclaim as the solution to individual and national economic distress, like our ideological predecessors of 1929-1932 did, but let’s use up all that government largess in bailing *US* out instead. The Great Depression also made the rich far less rich, and thus unable to prevent an FDR; by bailing ourselves out, we can make sure that will have the resources to prevent that.”

    Did I sum Bernanke up well enough?

  2. Ian Welsh

    Essentially, though he cloaks it in more flattering language.

  3. different clue

    I remember that back when Bernanke was Fed Chairman I still got CSPAN on cable TV.
    I was watching some Bernanke testimony before Congress and I did not understand what he was saying in detail. But I understood him to be saying that basically nothing bad was going to happen, the Fed was watching this, that and the other things; and would make all the right preventative and adjustive moves.

    The interesting thing is that when I heard him saying that everything is alright and will stay that way, his voice almost broke for a few seconds from badly contained fear and panic before he got it under control. What could get him that scared? Not a bunch of Congressfolk. He must see something very big and very bad approaching. I had no idea what it would be but I heard the fear in his voice.

  4. Ian Welsh

    The crash violated their ideology. They believed markets were self-correcting and that all information was priced in. As Greenspan said, it wasn’t possible to having a housing crash.

  5. bruce wilder

    The thing is, someone knew what was coming and moved a lot of political levers in order to put Bernanke in place in time to take care of it in a certain way, or at least with certainty about the political consequences.

    Bernanke wrongly thought “foaming the runway” with liquidity would enable Mr Market to absorb the necessary adjustments, but Bernanke was wrong: Mr Market used all that “free money” to fund speculation in commodities that caused a global commodities crisis. It was letting the air out of the commodities bubble that triggered the banking crisis.

    Bernanke flubbed things a bit, but the more important point remains that he was placed to purpose by people who knew what was coming and got the result they wanted and none of us really know who “they” were (or are).

  6. Stormcrow

    The ability to usefully predict what a system will do depends on several factors.

    1) Understanding the dynamics of the system. If you don’t have that understanding, then the best you can do is to fit curves to the observed behavior and hope you get lucky. This was the entirety of planetary astronomical theory until Copernicus. Improving your understanding of the forces governing the system will give you better predictions, all other things being equal. Missing something vital can turn any prediction you try to make into instant garbage.

    2) Regular behavior of the system in question. For example, periodic behavior is far easier to understand and use as the basis for prediction than non-periodic behavior.

    3) Avoiding temptation. For example, people love to assume that the system they’re discussing behaves periodically, when they don’t have decent supporting evidence. The phrase “cycles of history” makes me wary whenever I read it, for precisely that reason.

    4) Scale. Sometimes, you need to back away from the most precise possible description, because you can’t follow it through to its consequences, but you can follow average behaviors. This is why we use thermodynamics to study average behaviors of gasses, instead of trying to deal with them at the molecular level. That’s also why Ian’s sociologists like to study the behaviors of larger social groups, rather than individuals or small groups.

    5) Beartraps. For example, every system that’s biological at bottom has dynamics that’s fundamentally nonlinear. Nonlinear dynamics may, in certain parameter regimes, admit deterministic chaos. When that happens, predictive ability gets up and leaves the room.

    Mathematical modeling of “interesting” systems (i.e., systems that are biological at bottom) is what sent me back to university, to enter grad school. Watching a veritable mathematical model “demolition derby” is what taught me to be cautious and pessimistic about the predictive ability of mathematical models, and by extension, all models.

    I’m not silly enough to deny their utility. But I don’t treat them like physics. Remember how the IHME model of Covid-19 fell from grace back in early 2020? Influential Covid-19 model uses flawed methods and shouldn’t guide U.S. policies, critics say.

    How in the hell can you possibly hope to construct a predictive model for a still-evolving virus, when you can’t even predict when or how it’s going to mutate?

    Treat these as tools for figuring out what the system may be capable of doing, and you can get quite a bit of value from them. Even to the point of making useful predictions. Treat them like Maxwell’s Laws OTOH, and eventually you’ll be sorry.

  7. Ian Welsh

    Most mathematical models work… badly, at least for event prediction. I have models, but they’re made up of principles. They key is to find principles that are almost always true, and know any exceptions.

    A simple principle that is almost always true is that occupation troops become weak, for example: thus my predictions about Israel’s war performance.

    When I first looked into climate change, it was early enough for us to do something about it. But when I learned how our elites function, it became clear they would do nothing: indeed worse than nothing.

    This is why all theoretical possibilities aren’t actually possible: if something won’t be done because of decision maker hard commitments, they it’s not actually possible in the real world.

    Another thing is to find events that are inevitable. If it’s inevitable, it’ll happen, then you just need to get the timing roughly correct.

    Yet another is looking for pain points on decision makers or those who might have a veto. At what point will changing hurt less than not changing?

  8. Curt Kastens

    I predict that if La Pen wins an election in France she will cave in and support the USKEU policy against Russia.
    If La Pen and the AFD in Germany were to win elections with such large margins that they did not need to form coalitions at roughly the same time we they might be able to change to policies of the conteninent. But the chances of that happening is very very small.
    I also predict that there is no way in hell that humans will transition to an all electric transportation system even if all coal powered power plants were replaced by wind and solar power tommorrow. So many people live in appartment buildings around the world the infrastructure would never be built to be able to charge all of those cars.
    A much better idea would have been to set up a society to revolve around public transportation. But to do that would require a transition to a different kind of command of economy . A economy not commanded by special interests. A command economy that was commanded by autoritarian stoic confuscians (perhaps in some circles known as a type of civic republicans).
    Finally here is a really clever prediction. Humans will attempt to rebuild the infrastucture required for an industrial civilization after this infrastructure is destroyed by floods, high winds, hail, landslides, fires, and earthquakes until such time as industrial civilization collapses.
    Last but not least. I predict that when huge numbers of people start to realize that if they want to say anything relevent they have to choose between destroying the truth and destroying hope the large majority will choose to destroy the truth.
    The strategic future is dead. The tactical future has not yet disappeared. Does a tactical future have any value without a strategic future? I guess everyone will soon be making their own judgement about that.

  9. different clue

    @Bruce Wilder,

    I strongly suspect that Alan Greenspan was one of the “they” who guided Bernanke into that position. Or at the very least by telling “they” that in Greenspan’s “perfeshuhnull” opinion, that Bernanke was a pair of Good Hands.

    I have no real evidence for my suspicion, but I have long suspected that Greenspan did everything he could from his position of ” hands on the control knobs” to engineer the housing boom-bust-crash deliberately on purpose. And he was merely pretending to “believe” in the “ideology” that led him to “make a mistaken belief” that the market was self-correcting. That was to wipe his fingerprints off the deliberate nature of the carefully engineered boom-bust-crash.

    His real Prime Directive was and remains “Mellonism”. As in Andrew Mellon ( Herbert Hoover’s Secretary of the Treasury). Andrew Mellon welcomed the Great Crash and its attendant Great Depression. Here is how Mellon expressed his joyful welcome of the Great Crash . . . ” Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”

  10. mago

    Not competent to comment on the comments here; however, I’ll add a couple of cents.
    I’ve mentioned here before that in my younger years I studied and practiced the ancient art of palmistry. You can poo poo that practice, but it proved a reliable diagnostic tool in my experience.
    However, I made no predictions. Rather, I looked at character traits, dispositions, and events, then put it all together and attempted to provide a degree of insight into the subject’s life while maybe helping out a bit.
    Perhaps there are parallels to Ian’s position, although he speaks to public spheres rather than the
    Not attempting to parse it.
    On another note which may pertain I’ll quote the 9th century Indian pandita Shantideva who said:
    To see where you’ve been, look where you are now. To see where you’re going, look where you are now.

  11. someofparts

    Saw a story this week saying that in California they may have to start turning off the power sometimes in conditions that might lead to wildfires. It was mentioned in the post that moving the power lines underground would solve the problem, but doing so would be too expensive. I take this as a data point in support of the prediction that off-shoring industry and organizing the economy around financial rent-seeking would make us less prosperous.

  12. Ian Welsh

    PG&E also doesn’t clear brush or trees or even tree branches around power lines, and many of the posts are over 100 years old.

    Spending money on that would reduce shareholder dividends and executive salaries, after all.

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