Making society forecast-proof

The trouble with forecasts is that they are almost always wrong. That's in part because the accuracy of forecasts deteriorates rapidly with time. I might predict quite well what I will be doing tomorrow. But predicting accurately what I will be doing exactly one year from today or exactly 10 years from today is exceedingly difficult if not impossible, even if I already have something planned.

How much harder it is then to predict the state of complex systems such as the world's energy delivery systems 10, 20 or 30 years hence. There are many factors that make such predictions hard including:

• the inaccessibility of audited data such as oil and natural gas reserves for many of the largest producing countries in the world
• the uncertainties about future discoveries
• the uncertainties over the rate of depletion for fossil fuels
• the uncertainties concerning future technological advances in extraction and energy efficiency
• the growth and viability of alternative fuels
• and the future course of energy prices and the world economy just to name a few.

And yet, we have premised our entire future on business-as-usual forecasts made by leading energy consulting firms and government agencies. Strangely, some of these forecasts come without even the slightest hint about how unreliable they may be. A forecast from the highly influential energy consulting firm Cambridge Energy Research Associates tells us we have precisely 3.74 trillion barrels of remaining recoverable oil in the world. It concludes that a peak in world oil production is still at least 20 years off and is to be followed by an "undulating plateau that may well last for decades." Neither a range nor an error bar can be found in this forecast.

Because such forecasts have been embedded in public policy and business planning worldwide, we have made our entire global society dependent on getting these forecasts right. If they turn out to be too optimistic, then we could all be in for serious trouble. Since long-term energy forecasts--and really any long-term forecasts--are difficult if not impossible to get right, perhaps we should consider making society forecast-proof insofar as that is possible.

When it comes to energy supply, the surest way to make that happen would be to power society with 1) solar energy and its derivatives including wind, waves, and biomass, 2) energy derived from gravity such as tidal power and 3) hydroelectricity which is made possible by gravity and the water cycle. These sources fall under the heading of renewable energy, of course, and it more a scientific fact than a forecast that the sun will burn for a few more billion years and that the force of gravity will be with us indefinitely.

A global society powered in this manner would be immune to any forecasts about future supplies of fossil fuels, be they pronouncements of plenty or warnings of imminent supply shocks. Yes, the future of the petrochemical industry might be at stake, and given the current nexus between agriculture, oil and natural gas, this is no small issue. But if food production were also made independent of fossil fuels, then we would create an even more resilient society. (Such a move might mean many more people would be involved in growing food in such places as their yards, community gardens, and unused urban, suburban, and rural lands. But again, the upside would be an agriculture freed from the dangers inherent in fossil fuel supply forecasts.)

Naturally, the industries and interests which benefit from the world's addiction to fossil fuels would not be in favor of such a society. And, that is why they entertain us with their frequent forecasts of fossil fuel abundance far into the mists of the distant future.

If we were to attempt to make all major activities in global society less exposed to forecasting errors, many of those who currently make their living producing essentially defective forecasts would lose their jobs. No doubt they would forecast a tremendous cataclysm if this were to occur.

Forecasts may, in fact, be desirable in many parts of our lives. We like to know what the weather will be today and tomorrow and perhaps for the week. We seem to have an appetite for the weather report regardless of how many times it is in error. Companies need to project what their prospects will be before they attempt a new venture, release a new product or enter a new market. In each case the forecast a company makes may be right or wrong, but a wrong forecast won't bring down all of society!

And, that is my central point. I am not suggesting that we somehow eliminate forecasting. Rather I am proposing that we structure our lives and society so as to make forecasts largely irrelevant. A resilient, robust society would be one that is not dependent on finite, nonrenewable energy sources. It should be highly decentralized, diverse, redundant and mostly small in scale in its critical functions such as the procurement of energy and food.

Under these conditions forecasting would be far less critical, and errors in forecasting would be far less likely to lead to a civilization-wide catastrophe. This is true for two reasons. First, the energy sources for such a society could not suffer depletion. Second, due to the highly decentralized nature of such a society, parts of it could fail without bringing down the entirety of global civilization. Naturally, there should be arrangements for mutual aid when catastrophes occur. But that aid would be much more assured in a system where most of the parts of the system survive and thrive even in the face of a localized tragedy.

Making society forecast-proof doesn't assure us that no problems will arise. It only helps us to keep those problems smaller, more localized and therefore much more manageable when they do arise. This may one day be seen as a virtue in a world experiencing ongoing global financial turmoil borne of the excessive size of financial institutions and the excessive concentration of risk in them, risk that was poorly understood and therefore poorly forecast.

A simpler, more robust world is possible, and we would be wise to choose it before that simplification is forced upon us by circumstances that we may find exceedingly unpleasant.
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The inspiration for this piece was a presentation featuring Nassim Nicholas Taleb, author of The Black Swan, who now seems to be on a mission to make the world safe from forecasters. He discusses his views alongside Daniel Kahneman, a Princeton psychologist who has studied economic behavior and found it to be far different from what neoclassical economics predicts. Kahneman received the Nobel Prize in economics for his work.

The discussion between these two men focuses primarily on the fragility of the current global financial system and how to make it more robust. It is a stimulating hour of listening.

Listeners might want to consider one obvious implication of Taleb's conclusions. The value of one's investment and/or retirement portfolio is entirely dependent on frequent accurate forecasts from today up to the date of planned liquidation. Should nonprofessionals be risking their savings in this way?

                                                                                               --KC