Policymakers must stop hiding behind myth of ‘unprecedented changes’
- It is time to stop viewing crises as exceptional events and admit how frequently shocks actually occur
- The task of forecasters and policymakers is not to predict the next catastrophe but to sharpen their focus on resilience – what it takes to stay the course with politically mandated policies while minimising inevitable dislocations
I have been in the forecasting business for more than 50 years. Over that period, I have heard the constant refrain that the world is in the midst of “unprecedented changes”. This popular trope frequently resulted in equally hyperbolic corollaries: breathless claims that we have never faced greater risks or such an uncertain future, and that forecasting has never been harder. Repeat it enough and it starts to become believable.
The subsequent disinflation of the 1980s allowed the horror show of the 1970s to run in reverse well into the 1990s, which came to an end with the Asian financial crisis, ushering in what was initially billed as the first crisis of globalisation.
But today, we look back on these episodes as mere tremors preceding the seismic shocks to come. The information technology revolution and the dotcom bubble of the late 1990s and early 2000s hinted at the profusion of asset bubbles that afflicted global property markets and many financial instruments, from subprime mortgages to broader credit flows and equities.
The cynic in me says, “Been there, done that”. But just because I have plied my trade as a forecaster during a half-century of turmoil doesn’t mean I have a unique understanding of what comes next. Bearing in mind the observation that history often rhymes, I offer three key lessons from my experience in attempting to make sense of what may lurk in the uncertain future.
For example, in the late 1990s, Asian economies built up large reservoirs of foreign-exchange reserves – a move that would have helped prevent the next Asian financial crisis but did nothing to stop the one that actually occurred, which arose from the bursting of an equity bubble.
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It is against this background that forecasters face the seemingly impossible task of predicting the future. Of course, public policymakers face an equally profound challenge. While another crisis is coming, probably sooner rather than later, aligning forward-looking policy with the pitfalls of a highly uncertain future is the functional equivalent of balancing a heavy weight on the head of a pin.
But that hardly justifies self-serving excuses for policy mistakes or portraying asset-market mispricing and economic dislocations as unavoidable accidents arising from so-called unprecedented circumstances. I have run out of patience with policymakers, corporate decision-makers and investors who collectively throw up their hands and say, “Don’t blame me”.
This is largely a cop-out. Shocks are here to stay, and our task is not to predict the next one – although someone always does – but to sharpen our focus on resilience. Staying the course of politically mandated policies while minimising the inevitable dislocations is easier said than done, but that is no excuse to fall for the myth of being victimised by the unprecedented.