Myth of the Unprecedented

Dec 20, 2023

I have been in the forecasting business for over fifty years. Over that period, I have heard the constant refrain that the world always seems to be in the midst of unprecedented changes. Equally strong hyperbolic corollaries frequently arise from that assertion: Breathless claims that we have never faced greater uncertainty, greater risk; or that it has never been harder to forecast in such an uncertain future. All of this is a myth.

My crystal ball has been cracked so many times by purportedly unprecedented developments that I have lost count. The 1970s was, indeed, a decade of extraordinary turmoil; the oil shock of 1973, followed by the Great Inflation and a subsequent stagflation set the stage for the first seemingly unprecedented phase of the post-World War II era. The subsequent disinflation of the 1980s allowed much of the horror movie of the 1970s to run in reverse well into the 1990s. The 1990s came to an end with the Asian financial crisis, as the so-called East Asian growth miracle imploded, ushering in what was billed at the time as the unprecedented, first crisis of globalization.

Yet today we look back on all those seemingly unprecedented earlier disruptions as child’s play, a mere warm-up act ahead of the seismic shocks to come. The information technology revolution and the dotcom bubble of the late 1990s and early 2000s were hints of a profusion of monstrous asset bubbles that afflicted worldwide property markets and most financial instruments, from sub-prime mortgages to broader credit flows and equities. When the music stopped, the resulting cross-border and cross-instrument contagion led to the Global Financial Crisis of 2008-09. It was billed as, you guessed it, another unprecedented upheaval in what had become a crisis-battered world.

Surely, we collectively thought, it couldn’t get much worse than that. But, of course, it did. A once in a century pandemic and the extreme weather events associated with climate change put the timeworn concept of unprecedented in a new light. As did the outbreak of protectionism, trade wars, tech conflicts, and a potential superpower collision between the United States and China. Add to that the appalling outbreak of renewed wars in Eastern Europe and the Middle East and the unprecedented has seemingly become the new norm. New best-selling books include titles featuring the “perma-crisis” or the “poly-crisis.”

I posit three key lessons from the unprecedented continuum of the past half century:

  • First, learn to expect the unexpected. The human species is inherently autoregressive, always looking to the recent past as the best predictor of the future. Policymakers are especially prone to this myopic approach—repairing flaws in systems that led to the last crisis, never taking a stab on what might spark the next crisis.
  • Second, there is an unmistakable continuum from one so-called unprecedented era to another. One crisis tends to beget the next one.  My favorite example: Led by the great Paul Volcker, central banks were exceptionally tough in arresting the Great Inflation. Yet while they won the war, they squandered the disinflationary peace—taking interest rates far too low to preserve financial stability.
  • Third, crises and the seemingly unprecedented developments they spawn are now the rule, not the exception. Over the past five decades there has been an average of one crisis every three or four years. Just as sure as the sun sets in the west, another crisis is coming, probably sooner rather than later.

The bottom line: Aging forecasters like me have always been presented with the seemingly impossible task of predicting the future of a world purportedly afflicted by so-called unprecedented shocks. Of course, this is not only a challenge for the forecasting community, but an equally profound problem for public policymakers. Aligning forward-looking policy with the pitfalls of a highly uncertain future is, indeed, the functional equivalent of balancing a heavy weight on the head of a pin.

I get that. But that hardly justifies self-serving excuses, explaining away policy mistakes, asset market mispricing, and economic dislocations all as unavoidable accidents arising from so-called unprecedented developments. I must confess to having lost my patience with policymakers, corporate decisionmakers, and investors who collectively throw up their hands and say, “don’t blame me.” It’s high time for all of us to own the consequences of our unprecedented, unpredictable world.

That’s it for me in 2023.  See all of you in a couple of weeks, in a New Year certain to be filled with unprecedented developments! Happy holidays!

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