Many macro economists seem to be in the business of predicting the future. Well, guess what? The future has the nasty habit of not giving you a view of its deck of cards in this big poker game called life.
Every year we see economists predict the future to see a year later that the predictions didn't play out as expected. To our view it would be good if more economists embrace the scientific theory of bounded rationality. The human brain simply has its limitations. We can theorize, but we cannot fully predict the future since the number of variations of reality are just too numerous. On top of that the impact of political decisions of governments and voters don´t fit in economic models, especially because they themselves don´t even know what they´re going to decide or vote later this year.
How to deal with this? We particularly like mature analysis of economists who think in scenarios in which they leave it to the public to decide which scenario they believe will eventually play out. To illustrate, one could prepare for an optimistic scenario in which Trump proves to be milder than we feared, we get a soft Brexit and China continues to growth at a rate of 6+% or a pessimistic scenario in which Trump goes berserk, the insecurity about a hard Brexit creates a dark cloud above financial markets and China’s growth plummets to historic levels. One thing is sure, we will not know which of these is going to happen until it has happened. So why don’t we prepare for multiple scenario’s that we think are likely?
Research as well as our experience shows that at the end of the day people and companies tend to do well if they have the habit of preparing themselves for what could come. So don’t get caught up in exactly trying to predict which scenario will play out, but prepare mitigative actions for the most likely scenarios and organise to be flexible. Invest in learning new trades, reflect on your choices and behaviour and ponder what to do in the different scenarios. And then action these. Because at the end of the day actions speak much louder than words.
See you in two weeks!
Vincent Hooplot & Michiel Breeschoten