Predicting the future isn't what it used to be

There are certain things we know.  There are certain things we don’t know.

We know how many people there are.  We know the likely fertility rate of those people.  We have an idea of mortality, both infant and maternal. For a reasonably long period we do know how many people exist in different populations, different countries and different regions.

Since we know how many people there are and are likely to be in the future, we have an idea of how much food we need to keep them fed.  We have a rough idea of their energy needs, and the number of cars and washing machines they will buy.  This means that electricity suppliers can calculate how much they need to produce in the future, manufacturers have an idea of how much to produce and politicians have an expectation of how much they can raise in taxes.

That’s the way it is supposed to work.  Experience tells us that things ain’t that simple.  Marginal effects can be become major economic catastrophes.  Entire industries can be laid waste.

Yet, when $ 2 trillion is destroyed on global stock exchanges, the people who work in the companies who lost all that money continue to exist.

Analysts who work on population studies can get things wrong just as often as analysts who work in finance.  However, the rate of change is much slower.  If everyone stopped having children today, the population wouldn’t halve overnight.  If everyone got pregnant today, the population wouldn’t double tomorrow.

Not so for analysts who work in finance, where economies really can halve or double in a day.

Politicians and the public have been quick to mock and deride bankers who grapple with this precise difficulty every day.  Banks lend out money over the long-term (in 20-year home loans) but finance that with short-term deposits; borrowing money from people’s savings accounts on a daily basis.  If home loans aren’t repaid, there isn’t money to pay depositors and instant collapse follows.

Effect follows cause.

Around the world education systems are usually controlled by the state.  If a government fails to invest sufficiently in good quality teaching then graduates are bereft of skills.

Those limited skills offer only limited employment prospects and very low incomes.  When employers then offer only low-skilled, low-wage jobs - or no work at all - it is a consequence of an education system that fails to prepare school leavers for useful work. 

The blame for miserable employment opportunities lie with the politicians who ran education policy more than a decade before.

The same goes for healthcare investment.  It takes years to develop new therapies for emerging diseases.  But it also takes years for new types of morbidities to become dominant.  AIDS is highly contagious, but it was first identified back in 1984.  It didn’t become endemic in South Africa until the mid-1990s.

When Eskom requires more money than anyone can afford in order to rehabilitate and expand their electricity network, it is because too little was invested before.  The South African population is growing, getting wealthier and demanding to use more energy-sapping devices.  A battery does a good job of powering up one flashlight.  Connect it up to 200 flashlights and it will be gone in a moment.  If you then need to buy 200 new batteries all at once it can be a tad expensive.

There are certainly problems that come out of nowhere like a traffic accident and cause carnage. 

However, a health system prepared to deal with emerging illnesses over the long-term will also deal with the occasional bout of swine flu.  An education system that prepares children for valuable and skilled work can handle disruptions caused by sudden innovation.

The credit crisis is not a failure of one industry.  It is a signal flare lighting up more general wilful ignorance and bad planning.