23 September 2008

Amazing Predictive Skill

One last post related to the financial crisis for the time being...

A question that comes up as one sees the highly praised (and paid) financial experts wrecking their ships: Could it have been avoided? Could it have been foreseen that those suprime mortgages eventually would backfire? Well, in hindsight it is easy, but was there anyone who did anticipate it?

I've heard Swiss and German bankers and politicians say (with regard to banks over here being affected by the American virus) that no one could have possibly foreseen this crisis. It came out of the blue...

Well, CNN has a page where they show eight experts who did smell that something was starting to burn, and eight others who didn't. But much more impressive to me are the predictive abilities of the American author James Howard Kunstler. In his really interesting book "The Long Emergency", which was published in 2005, he did indeed foresee that the housing bubble would not last too long. Ok, it lasted longer than the thought, but in the end he passed the reality check. Much better than many so-called financial experts, anyway. Here are a few sentences from the book:

James Howard Kunstler: The Long Emergency
Chapter six: Running on Fumes (The Hallucinated Economy)
Section: Home: The last refuge of value

By the time you read this, it is very likely that the housing bubble will have begun to come to grief. [....]

The economic wreckage is liable to be impressive. If large numbers of house owners cannot make their mortgage payments, Fannie Mae and Freddie Mac, and by extension the federal government, would be the big losers. [...] It could easily bring on cascading failures that might jeopardize global finance. This time, the American public would feel the pain.

Does this sound strangely familiar? It was written in 2004, and although Kunstler probably did not think that it would take another four years to become reality, eventually it did. At least I am impressed by Kunstler's future-telling abilities.

Interestingly, the main topic of "The Long Emergency" is peak oil, another hotly debated issue. Many energy experts, economists for the most part, don't think that oil production might peak anytime soon (if ever). Kunstler expects otherwise, an he is not alone. His view is backed by ASPO, The Oil Drum, Matthew Simmons, and the EnergyWatchGroup, to mention just a few. Could Kunstler be right in this case as well?

Certainly, some of the opinions put forward in the peak oil debate deserve a closer look under the title of a reality check. I will come back to this topic.

1 comment:

  1. You mentioned IEA and CERA, but the US's EIA and USGS seem to fit this camp as well, and many climate change economics models (unfortunately) follow those.

    At least Kharecha and Hansen are starting to model peak Oil and climate together.

    I'd also strongly recommend Robert Ayres' work that models economic growth as a function of work = efficiency * energy used, such as in talk for ASPO. See the last page in particular. This implies that from a pure-economic view, we are in a race to increase efficiency and build sustainable supplies faster than the downdraft of high-EROI fossil fuels. I've reviewed his forthcoming book and it makes a pretty good case, I think, although I'm no economist of course. Ayres also wrote earlier about economists and climate change.

    The recent ASPO meeting in Sacramento was good, and the presentations are available under Proceedings.