Tuesday, March 23, 2010

A thought about unforeseen contingencies

...not the blog, but on just how difficult it is to predict the future.

In August 1989, I traveled to West Africa to visit a friend and tour several countries. When I left the U.S., I had no particular inkling that the Soviet system was likely to unravel. But while I was in a small village in the remote backcountry of Guinea, the news came across BBC that Hungary had opened its borders with the West and East Germans were escaping across it. I was rather astounded, and was trying to explain to African friends what it all might mean. Two months later the Berlin Wall fell. But even then, how many realized that within two years the USSR would be gone as well? Answer: I certainly didn't, and almost no one else did.

When the USSR finally collapsed I was in my Ph.D. program at NYU, and taking a course in Comparative Economic Systems. During a discussion of the Soviet economy, the professor, Peter Boettke, asked if I had any opinion on the future of the Soviet Union. By coincidence, only days before before I had heard Gary Kasparov speak and assure us that the USSR would be gone very shortly. I said so, thus ensuring my reputation as a forecaster. If the conditions were as Kasparov described, the end of the USSR was obviously only a month or two away. If.

The point of this reminiscence is to remind myself how impossible it is to predict economic and political events. We can make good conditional predictions, of the sort "if A then B," but the trick is knowing which conditions will hold. We're not much good at that. I just took Kasparov's word for it.

With this caveat in mind, I note that historian Niall Ferguson of Harvard has an extremely interesting and chilling essay in the March/April 2010 Foreign Affairs, in which he ponders the likelihood of an imminent Soviet-like collapse for the United States. In a nutshell, he thinks the end of American empire is very close.

I'm a little skeptical of the complexity theory he invokes, but we don't need complexity to make a good conditional prediction about why he might be right. The United States government is currently on course for the national equivalent of bankruptcy: a sovereign debt crisis. I'm convinced that the passage of the new Obamacare bill puts us further down this road. Is there any reason at all to believe that this new federal monstrosity will stay within budget and deliver what is promised? I think the answer is no, and make a partial argument here.) Perhaps gullible Obama supporters think it will, but I suspect our creditors in Beijing are a little less starry-eyed about all this. There have already been some expressions of worry from that quarter about our long term fiscal position. It's not difficult to imagine that anything that sharply worsens our deficits could lead them to reduce or abandon their continued support of our deficits. If this happens, it could trigger the sort of catastrophic effect Ferguson warns us about.

So consider that CBO estimates that the net effect of the three major health care bills that recently have been passed and signed into law is that they add $59 billion to the national debt over the next ten years. It's simply a dishonest stunt to pick two of these three pieces of legislation and find that we are reducing our deficits. It might fool Obama's true believers, but I have my doubts that the People's Bank is among them. If the debt charade continues... well, we're in the position of the man who falls off the top of the Empire State Building: "hey, I've already fallen 100 stories with no bad consequences, I guess things are OK after all."

But on the other hand, bad consequences are not assured. In my view, at least, we could still turn things around. The level of outrage against Obama and co. seems pretty high, particularly among those who still believe in individual liberty and free markets. The numbers are not in favor of Obama and Pelosi, as I document here, for example. I suspect a horrendous political fight ahead for the democrats. It's unfortunate that the republicans are largely a worthless bunch, but the ire of the Tea Partiers is very high, and they are much more in tune with reality than either party.

Go figure how all this will unfold...it's quite an unstable situation. I can only say I fully agree with Rush Limbaugh: "We need to defeat these bastards. We need to wipe them out. We need to chase them out of town....They must my friends, be hounded out of office. Every single Democrat who voted for this needs to know, safe district or not, they are going to be exposed and hassled and chased from office."


Photo: Boris Nikolaevich in the process of chasing some bastards out of power.

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