Johan Fourie's blog

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2020 vision

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One of man’s eternal quests is to predict the future. We all want to know what will happen tomorrow, next year, or twenty years from now, not only because we are curious beings but because it has a real effect on how we behave today: I have one year left to live? Well, perhaps I should go on that expensive vacation. The economy will boom within the next five years? Well, perhaps I need to buy that property today.

Modeling the future is therefore one of the activities economists and other scientists tend to do and, if they are relatively successful (i.e. accurate), are rewarded for richly. Take New York University economist Nouriel Roubini who famously predicted the collapse of the US housing market and the consequent recession. Here’s his entry on Wikipedia: “As Roubini’s descriptions of the current economic crisis have proven to be accurate, he is today a major figure in the US and international debate about the economy, and spends much of his time shuttling between meetings with central bank governors and finance ministers in Europe and Asia. Although he is ranked only 512th in terms of lifetime academic citations, he was #4 on Foreign Policy magazine’s list of the top 100 global thinkers.” They neglect to say he makes a ton of money. (Roubini continues his bearish stance on the economy which provides a clear lesson for future economists: pessimism sells.)

But it is not only economists who attempt to forecast the future. Historians such as Niall Ferguson (Civilization) and Ian Morris (Why the West Rules – for Now) use the past to map the future. Morris’s contribution builds on Jared Diamond’s Guns, Germs and Steel to argue that the reason the West ruled was mostly due to geography and, importantly, how societies adapt to the changing climate and environment. Ferguson argues that Europe developed six ‘killer apps’ that ensured that they ruled the world after 1411. Both authors paint pessimistic pictures for future Western domination. Economists often get heavily criticised for projecting or forecasting trends two, three years or even a decade into the future. Much of the criticism is true; the world is complex and by projecting what will happen even a few months down the line, economists risk looking like fools. And ask any investor. Despite (or perhaps because of) no quantitative evidence, these historians have found a gap in the market: Using mega-histories to explain the rise and fall of societies, they claim to be able to see far into the future.

Cliodynamics

Enter the mathematicians. As an article in Nature (and a new one in Wired) suggest, a group of mathematicians have taken up the forecasting crusade by using newly digitised historical data and undertaking cliodynamics. They claim to find cycles of upheaval in society: as the graph illustrates, every 50 years (1870, 1920 and 1970) have seen major social disruptions. They predict that 2020 will see a new flood of protests, riots and/or terrorism.

There is much to disagree with: Is this only true for the US, or a global phenomenon? Were the US really a peace-loving society between 1780-1840? Are three data points enough to statistically predict future trends? But the problem is more fundamental: the US (and world) economy today is very different from those of earlier periods. What would be the justification that similar patterns would emerge today when, in economics jargon, the data generating process is fundamentally different?

Finding historical cycles is an old fantasy (Isaac Asimov’s Foundation spells out the science of Psychohistory). But it is little more than fantasy. Historical statistics can tell us a lot about history (or help us reinterpret history, i.e. cliometrics), but, like the long-run predictions of historians, it has little scientific merit for making (accurate) predictions about the future.

Written by Johan Fourie

April 12, 2013 at 16:04

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