Machan's Musings - Pitfalls of Predictions
by Tibor R. Machan
Many moons ago I listened to a lecture by an eminent economist who was predicting that, with the unruly intrusiveness of the American federal and state governments, there would soon be a devastating economic downturn. The welfare state, he argued, can only last so long, after which there will definitely be a comeuppance.
That, actually, was also the teaching of one of the most famous free market economists of the Twentieth Century, Ludwig von Mises, the leader of the Austrian School of economics. But he wasn’t alone—quite a lot of others in the discipline fancied themselves to be seers, forecasters of both short- and long-range trends. Be they of the Austrian, Marxist or neo-classical schools, they usually hold to a certain understanding of human nature—containing within it various built-in tendencies or inclinations—as well as to laws of history or the economic system, so they believe they can, with sufficient data on their hands, tells us what’s about to happen both in the overall economic system and in some cases also with individual human agents.
Of course, all social scientists who contend that such predictions can be made hedge their bets. They do so by way of the undeniable fact that none of us has command over all of the necessary information that would enable one to make a certain prediction—a bit like the weatherman. The most that they claim they can offer is pretty good estimates or probabilities. To be certain, they would need to know all the relevant facts, and no one is so positioned; ergo, one can always provide an excuse for a bad prediction.
Problem is, the initial assumptions of such forecasting and predicting are highly dubious. People aren’t robots hard-wired to behave in predictable ways within any kind of environment. Their economic decisions often vary from person to person. Indeed, even a given individual can carry on differently in completely similar circumstances—how he or she will act is more often up to the individual than to any kind of fixed factors on which the people in the social sciences can base their clairvoyance.
One consequence of this is that, while the social scientists build fixed models of the micro and macro world on which they base what they expect to happen—given even a reasonably clear anticipation of the circumstances people will face—actual human beings come up with surprising decisions in the face of these circumstances. That’s probably because they vary in the degree of attention they pay to them. Perhaps, also, after a slew of bad policies have led an economic system to the brink of disaster, many people will finally perk up and take notice of this and change their conduct and policies. So the dire predictions won’t come true, because people will often change their old ways to new ones. Moreover, the dire predictions themselves can have the result that people will alter their conduct, having sometimes learned finally what is likely to happen if they carry on as before.
Take Paul Ehrlich. Back in the early 70s, Ehrlich, a famous Stanford University biologist, wrote the book The Population Bomb (1971), in which he made the prediction that in five years or so the vegetation of the globe would have shrunk to intolerable levels. But it didn’t happen. (Later Ehrlich made a bet with the late Julian Simon about whether certain vital resources would disappear, a bet Simon won because the resources didn’t disappear, and in fact became more plentiful.)
I am not sure exactly why Ehrlich’s expectations turned out to be wrong, but I would bet it had at least a little to do with how people began to change their ways thinking and acting upon learning of the dire warnings.
The same holds true for the eminent economists who kept saying that the welfare state cannot help but degenerate into a dictatorship. People are likely to carry on negligently for a long time, but then pull back and take the needed measures to forestall the disastrous results that have been so confidently predicted. Or not—for, sometimes, the logic of what they did in the past will simply yield consequences that they try to avoid too late in the game.
Still, I think it makes sense not to be too trusting of the social scientists' way of thinking about people, as if we were simply more complicated versions of some classical physical system whose outcomes can be predicted if the parameters are known well enough. People will probably keep surprising us, for better and for worse—that, in fact, is one way they are different from the rest of the matter in the world.
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