In the last 5 years, I have made a point of giving clear predictions on complex socio-economic issues. I give predictions partially to improve my own understanding of humanity: nothing sharpens the thoughts as much as having to actually predict something. Another reason is as a means of helping my countries (Australia/the Netherlands) understand the world: predicting socio-economic events is what scientists are for!

Time to have a look at my predictive successes and failures over the last few years, as well as the outstanding predictions yet to be decided. Let us start with what I consider my main failure.

Failed predictions

The main area I feel I haven’t read quite right is the conflict in Syria, as part of the general change in the whole Middle East. I am still happy with my long-run predictions for that region, where I have predicted that urbanisation, more education, reduced fertility rates, and a running out of fossil fuels will lead to a normalisation of politics in a few decades time. But at the end of 2012 I was too quick in thinking the Syria conflict was done and dusted. To be fair, I was mainly following the ‘intrade political betting markets’ which was 90% certain Assad would no longer be president by the end of this year, but the prophesised take-over of the country by the Sunni majority has not quite happened. The place has become another Lebanon, with lots of armed groups defending their own turf and making war on the turf of others. The regime no longer controls the whole country, but is still the biggest militia around.

What did I fail to see? I mainly over-estimated the degree to which the West would become involved. I expected the Americans and the Turks to put a lot of resources into the more secular militias, giving them training grounds and more modern equipment. As far as I can tell, this did happen a bit, but simply not to the degree I thought likely, and I don’t really know why. There were several attempts by the US and Turkey to identify an ‘opposition coalition’ to then support, so something hidden from view must have prevented actual support. Perhaps the US has decided it prefers Assad to the alternatives after all.

The willingness of the Iranians and Russians to support the regime has also been stronger than I thought, and the efforts of the Sunni-neighbours to support the non-regime militias have been less cogent than I thought: instead of backing a clear group that had a real future in terms of leading the country (the more secular groups), foreign anti-regime support came mainly for the crazies who went along with the ideology of fanatics elsewhere. That suggests a lack of pragmatic involvement from the neighbours.

I wouldn’t call it a complete predictive failure because Syria as a country no longer exists: it now does have all kinds of regional power brokers and so one could ‘claim’ the regime indeed has lost (most of) its power, but the conflict has gone on longer than the betting markets that I went along with predicted. So this also educates me about the lack of intellectual weight to that kind of political betting market: these are probably more feel-good markets with low turnover that simply don’t aggregate much hidden information. As a related failure, I can mention that I put a low probability on the event that the Muslim brotherhood would overplay its hand when in government in Egypt. I did mention the possibility (see later), but didn’t think it would happen.

 

Successful predictions

A very recent prediction of mine was on bitcoins. A month ago, I said governments were going to intervene because of the money laundering opportunities in the bitcoin network, and that it hence would not become a dominant trading currency. The next week, the Chinese came down with severe restrictions on bitcoins in their country: financial institutions were not allowed to trade in it and individuals trading in it had to register with their real names, killing off most laundering opportunities. As a result, the value of the bitcoins halved. I wouldn’t claim bitcoins are quite dead yet. It is when many other countries start to enact similar regulation (as some are doing) that it becomes an official curiosum.

Other predictions have been on various aspects of the GFC in Europe. I predicted such things as the Greek defaults when European governments were still pretending they would not occur, the survival of the Euro when there was lots of speculation on imminent euro exits, the inability of the ECB to actually meaningfully monitor banks, and the failure to get agreements on tax evasion (which have all been painfully clear in 2013). My proudest moment was to predict in December 2011 the overall trajectory of where the politics of the financial crisis was heading: support for weak new institutions in exchange for continued bailouts and forms of money printing, with national sovereignty as the sticking point preventing stronger institutions. We are still on that trajectory now, as this very recent report by the Bruegel Foundation argues which dryly summarises recent events: “Five years of crisis have pushed Europe to take emergency financial measures to cushion the free fall of distressed countries. However, efforts to turn the crisis into a spur for “an ever closer union” have met with political resistance to the surrender of fiscal sovereignty. If such a union remains elusive, a perpetual muddling ahead risks generating economic and political dysfunction.” The latest banking deal fits this mould perfectly.

I am also proud of my predictions on the ill-fated Monti-government in Italy of 2012. Before he was in power, I predicted he was unlikely to have the personality to change anything, and within weeks of him in government (December 2011) I mentioned the reforms he was talking about were dead in the water, months before the magazine The Economist still put him up as a great reformer. Only in 2013 did mainstream media outside of Italy wake up to his failure. I am similarly looking good on my observations regarding the problems in Spain.

On the Middle East, in 2011 I picked the current Lybian chaos coming from its resource curse. A few weeks into the Arab spring I predicted the ensuing grand coalition in 2012 between islamists and the military in Egypt, whereby the islamists would form government but with a tacit agreement with the military not to interfere with the economic interests of that military. I also predicted that the torture machine of the Egyptian military would first deal with the urban youth and then become oriented towards the islamists should they step out of line, which they did.

The main prediction I have been making since 2007 (and which has gotten me into the most trouble!) is the uselessness of looking for a world coalition to reduce CO2 emissions, mainly because the temptation to free-ride is irresistible both within countries and between them. I have thus consistently called to forget about emission strategies and to instead think of technological advances, geo-engineering and adaptation. In each year since 2007, the developments have been accordingly: steady increases in actual emissions with a growing number of scientists and research groups thinking more seriously about geo-engineering: previous agreements on emissions have not been kept and new ones are toothless, whilst you get many beautiful political speeches designed for consumption by the gullible during each new conference on the issues.

In 2013 for instance, the Japanese reneged on their earlier Kyoto promises because they decided to switch from nuclear to fossil, following on from a previous reneging by Canada. Similarly, the EU watered down its commitments in order not to upset the German car industry, whilst China and India and others helped prevent emission agreements with any bite. A nice write-up of the recent Warshaw talk-fest can be found here. Conspicuous in that write-up is the increased awareness of the importance of adapting to climate change, and the degree to which hope lies with new technology, not massive emission reductions under existing ones. The Australian deal with the EU trading scheme, which was all smoke-and-mirrors anyway, has fallen through, essentially replaced with a policy of ‘business as usual till the bigger players come up with a plan’, which I see as a sensible policy for Australia at the moment.

 

Predictions on the ledger

In many ways, the ‘emission controls are hopeless’ prediction is a running prediction for decades, so that one is very much still on the ledger. And one in which I am quite willing to bet against those who say they believe serious emission reductions will come about via emission markets or other controls.

Another prediction coming ‘half-good’ recently is the bet with Andrew Leigh on happiness and incomes in rich countries, where my prediction was that richer countries getting even richer would not get happier. For the data we agreed to look at it, this indeed held, but more because I got lucky with the data available – other data showed different results. Read about it in my recent blog on the topic by following the link!

Another prediction ‘on the ledger’ is that there is going to be no real change in Chinese politics till several years after they run out of easy growth opportunities, say 20 years from now. After that, I predict stronger and stronger pressure to adopt a Western-style political system from the Chinese business community. I gave a possible trajectory for how it might happen (local experimentation growing into national systems), but that is not the only way change might happen, if it happens at all. The prediction is the consolidation of the one-party rule till years after the growth has levelled off. That consolidation has indeed been in full swing this last year: as a recent piece of the Institute of Peace and Conflict Studies argues, in 2013 we got more media control and control over the economy by the party. Still, there are some embryonic signs of attempts to get some kind of separation of powers in that country, such as via more independent judiciary and financial institutions.

The prediction that the ‘behavioural genetics’ crowd is going nowhere soon is also a prediction ‘on the ledger’. The same goes for the prediction that Australia is not going to seriously improve its education-for-the-masses anytime soon, and the unlikelihood of solar replacing fossil fuel for mass electricity-generation anytime soon.

There is then a whole heap of predictions that I am quite happy to say have come true, but where it is also a certainty someone else would disagree. For instance, I predicted that the Melbourne Model, which is a change in how the University of Melbourne structures undergraduate education, would lead to dumbed-down degrees. Everything I hear about that place confirms it, but I would be astounded if the chancellery of the University of Melbourne would agree with that assessment! Similarly, my stated fears regarding the Gonski reforms (not quite predictions as I made it clear I had a hard time finding out what was actually going to happen) are looking all-too-true, but I am sure the ministries involved would disagree. One can trawl my archives for several more such ‘debatable’ prediction outcomes.

Finally, I have a bet on with Conrad Perry for what is going to happen in Egypt next. My prediction is that the next elected government will again be an islamist-lead government, a kind of Brotherhood 2.0. They may change labels and be even more careful, but I thought it likely that they would be involved as a dominant player in the next elections simply because of the high level of religiosity in that country. Conrad Perry bets on ‘all other outcomes’ with a bottle of red to the winner. Jim Rose also made an implicit prediction, which is that the new generation of military are going to be successful in their bid to monopolise power in Egypt, but he didn’t bet anything. Still, Jim is looking rosy on that prediction.

The prediction+bet with Conrad on Egypt was entered into around August/September and things have moved on a bit since then. The Egyptian military has proven more popular and bent on total control than I thought, but we are still looking at a situation in which one is likely to get democratic elections (though the military might well rig them). I will say I am less confident about my prediction now than 3 months ago, essentially because the military has been more brutal than I thought they would be, but there is still a chance for my prediction to happen so I am not ready to concede defeat on that one yet!