Failed predictions?
IRRESPECTIVE of the fact that the business of accounting deals with projections, professionally, and personally, I have always found making predictions loathsome. This is primarily because men, despite impressive technological gains, even today remain incapable of understanding, let alone mastering, uncertainty.
The suddenness and ferociousness of the Virus Wars was never imagined by anyone, and accordingly was never factored into any futuristic scenarios in any economic or financial model on this globe. Ironic, since economics is a discipline which only deals in models based on fantastic assumptions that work exclusively in a fictional world where all else can be held constant — and economics fails at this imagining every time.
For crying out loud, Hollywood did a better job of imagining a Pandemic; albeit, admittedly, imagination is their occupation. However, unfortunately, the objectives behind them imagining are entertainment and making money, and hence there is generally a happy ending. On the other hand, in the real world, to quote from memory, ‘survival of the fittest always comes up against the Iron Law of Failure, and survival always loses’.
Keynes was on the money: the safest prediction is — eventually everything fails.
There is hope, if and when nothing else.
In light of the above, and given the fact that economists and financial wizards, the vast majority at least, failed to predict the Great Depression and the Great Recession, and considering they are in general horrible at predicting the real world in any case, their belief that they can now accurately assess the economic impact of the Virus Wars, even today, is rather amusing, if not outright hilarious.
And if that was not enough, we seem to be smack in the middle of the predicting season. Mysteriously, everybody today believes that they understand the economy, and, at the same time, that anybody can make predictions — everybody and anybody, be they journalists, bureaucrats, politicians, doctors, lawyers, dentists, engineers, traders, parrots, or tarot cards — everyone except economists.
But is it really a prediction when the writing is already on the wall?
The global economy (hence all national economies) is expected to contract significantly and dangerously: people are not buying, and businesses will eventually shut down — no rocket science there. This will be a recession like no other. Double-digit unemployment and that too on the higher side is perhaps inevitable. With an unprecedented rise in non-performing loans, bank runs are probable. Commodity prices collapsing and global supply chains breaking down is a possibility. Free trade and free flow of currency may well become a memory. The future of paper currencies is highly uncertain, but definitely bleak. No point discussing the stock market, any broker will tell you it is always a buying market for some stupid reason!
Beyond lives, war destroys wealth and freedom. Globally, the authoritarian state will rise; democracy, freedom of speech, freedom of press, fundamental rights will stand significantly marginalised. New chapters will be added to social norms.
The severity of all this, however, is dependent on how soon the world wins the Virus Wars — the longer it remains under lockdown, the more likely the situation is to get more chaotic.
Predicting is not the problem today; anybody can today predict the coming bad days. What to do is the fundamental question. The bigger question is, can we rely on solutions from those who failed to predict the problem?
Even worse, the best made plans of men generally come to naught; the sole rational argument for why free-market theory survives. Historically, even under normal circumstances, men have always made a mess of allocating resources and failed miserably at setting prices — including interest rates. Monetarists still argue, rather convincingly, that the Fed caused the Great Depression.
But all is not lost; there is hope, if and when nothing else.
Arrogant men may have failed to outthink markets, but sensible men have successfully tweaked, nudged, and regulated markets. And this time round it is not really about all kinds of markets. The world economy will be in chaos because of the casinos, interest-based debt, and paper currency. But no infrastructure stands destroyed and no natural resource stands depleted; herein lies the solution!
Proactive collection of information and data, clarity of thought and not panic, troubleshooting rather than standard economic thought, spending within means before political expediency, alliances rather than altercations, and roads to nowhere should be the leadership’s arsenal in the coming days.
Critically, the Quaid’s slogan, unity, faith and discipline should be in the forefront — in substance rather than in writ only.
Finally, intelligent thought should be geared towards solving rather than predicting.
The writer is a chartered accountant based in Islamabad.
Published in Dawn, April 14th, 2020