Bryan Appleyard sums up a study by Berkley psychologist Philip Tetlock:
He studied pundits and discovered they were, to a rough approximation, always wrong when making predictions. He took 284 pundits and asked them questions about the future. Their performance was worse than chance. With three possible answers, they were right less than 33 per cent of the time. A monkey chucking darts would have done better.
Part of the problem arises from belief perseverance. Once we form a theory, we tend to stick to it, even in the face of contradictory information.
Low scoring forecasters exhibited that behavior in Tetlock’s study: they latched onto one big idea and blinded themselves to other drivers of history. Think about someone who peppers their speech with “moreover” and “all the more so,” continually stretching their idea and denying other interpretations. This over-reaching makes them prone to exaggeration, such as those who thought Quebec would secede and Canada would consequently disintegrate.
High scoring forecasters, on the other hand, recognized, even flaunted, a probability distribution of events. These are the people who qualify their arguments with “however” and “but,” those who accommodate opposing theories. They stitch together a framework of smaller ideas, rather then working down from a Grand Scheme.
An excellent series of visualizations dissecting the crisis. Here’s an example (click to enlarge):
One benefit of bubbles: they usually leave something useful behind. Despite the grief and anxiety wrapped with the downturn, bubbles fuel innovation at a breakneck pace and finance the infrastructure that vaults the economy forward.
Daniel Gross elaborated on this thesis in his book Pop: Why Bubbles Are Great For the Economy, citing irrational exuberance as the main factor for new commercial developments. During the post Civil War booms, for example, companies laid out competing and often redundant rail networks. Fifteen years later, a quarter of the companies landed in bankruptcy. The same pattern repeated during the ’90s: each major telecommunications company strung enough wire to service the entire nation. Collectively, they dropped over ninety percent by 2002.
But these busts were like phoenixes: new life arose from the ashes. The Internet pop directly led to Web 2.0 (Google, Skype, Wikipedia), technologies that gained critical mass after the bubble burst. Each directly benefited from the cheap excess capacity built during the ’90s.
This time around, the bubbles didn’t produce anything tangible which we can latch onto as consolation. A rise in house prices reflects paper growth, lost amidst the downturn, and reshuffling CDOs doesn’t provide the country with any lasting contribution.
Via the AP:
Republicans are preparing to pounce on any wasteful spending in the $787 billion stimulus package as they refocus their criticisms of a measure whose success could hurt their 2010 election prospects.
If the stimulus works, nitpicking won’t hold much weight. A few earmarks, which are less than one percent of the overall budget, are a small price to pay for a rejuvenated economy.
If the economy remains sluggish , the Democrats have already set forth a sequence of arguments to rebut charges of fiscal irresponsibility.
Obama has said that Republicans hardly have the authority to lecture about budgetary management as they squandered the Clinton surpluses and doubled the national debt over the past eight years. But there’s a time decay to this argument, and many Republican candidates in 2010 will have no link to Bush’s excess spending. Essentially, the purely partisan wrangling acts as a stop-gap until Obama can prove fiscal responsibility through his track record.
This week, Obama’s entire budget layout is oriented toward that theme of fiscal prudence. On Monday comes a comprehensive “fiscal responsibility” summit, and on Thursday, the administration reveals its first budget. Peter Orszag revealed that there will be a plan to “restore the nation to a sustainable fiscal trajectory over the five-to-10- year window.” Putting the country back on track for balanced budgets will establish Obama as a prime fiscal steward, even if Republicans hassle over a couple of earmarks.
First Read on the latest stimulus politics:
“A half-dozen Republican governors are considering turning down some money from the federal stimulus package…Who are these GOP governors? They’re a “who’s who” of possible presidential candidates in 2012 — Sanford (SC), Jindal (LA), Palin (AK), Perry (TX), and Barbour (MS).
If the governors reject the federal money, they will be forced to balance their budgets through a combination of tax hikes and spending cuts – not the ideal resume for any presidential candidate.
In general, economic prosperity lets governors build up that Record of Accomplishments – lower taxes and more services – which forms a pragmatic reputation. Such policies aren’t possible now, thus the tough decisions.
Ambinder notes that by signing the stimulus, Obama approved one of the largest tax cuts in history:
It’s hard to imagine we won’t hear about this four years from now. And if that’s not boxing a future Republican candidate in ahead of time, I don’t know what is.
Think about how many potential Republican arguments are going to be pre-empted by that nice little fact?
One upside of compromise: it spreads ownership and, as a result, blame if the plan fails.
Mitch McConnell on January 27, the day Obama met with Republican leadership to discuss the stimulus:
“Everyone was pleased with the level of candor and the desire to look for bipartisan solutions…It was a very productive meeting.”
“You know, there was no meaningful consultation in the early part of the process. So if you don’t have that on the takeoff, you don’t end up having it on the landing.”
A relevant passage from Nassim Taleb’s The Black Swan:
Show two groups of people a blurry image of a fire hydrant, blurry enough for them not to recognize what it is. For one group, increase the resolution slowly, in ten steps. For the second, do it faster, in five steps. Stop at a point where both groups have been presented an identical image and ask each of them to identify what they see. The members of the group that saw fewer intermediate steps are likely to recognize the hydrant much faster. Moral? The more information you give someone, the more hypotheses they will formulate among the way, and the worse off they will be. They see random noise and mistake it for information.
Absorbed in the hourly twists and turns on cable, pundits form conventional wisdom based on noise (in both senses of the word). The daily squabbling, however, has barely any significance over time
Despite the pundits’ rush to declare the Republicans victorious and the White House embattled, the public backs the president over the stimulus. Once again, entangled in the echo chamber of Washington, the talking-heads reach the wrong conclusion.
One of the administration’s greatest strengths is that they do not get bogged down in the mud and slush of twenty-four hour spin. They disdain conventional wisdom; accepting it would have stifled Obama’s candidacy from the start. Freeing themselves from the clutter of tactical, day-to-day posturing, the Obama team focuses on strategy, laying the groundwork for a broader picture.
In the meantime, their supporters fret, their critics delight — this was a recurring theme during the primaries. Why doesn’t Obama fight back? He’s weak. No one like that could make it to the White House.
But ultimately, the grand plan reaches fruition. In this case, Obama has established a reputation of reaching across the aisle; even his critics acknowledge this. When the administration tackles future problems — the bank bailout in the immediate future, Afghanistan and Iraq, entitlement reform — he can make a much more effective case, as people will view his actions through an authentic and conciliatory image. By strategically plotting his course, Obama preserves his core political identity.