Malthusian predictions and the search for ignorance

FOMC meeting has started and will come out with the announcement tomorrow. The US 10 year yield is trading at 1.56 right now, down slightly from previous levels. The Fed funds futures market is expecting the first hike to happen around July 2022. We had seen in the last FOMC meeting where the SEP's were given, 9 out of the 18 members were of the view that at least?one hike would happen in 2022 with 3 predicting 2 hikes. Futures market as of now is siding with the minority view with Nov 22 meeting also alive with hike. Lot of it would depend on the inflation in case it continues to remain elevated. Hike or no hike but the non-transitory inflation would surely make a dent in the credibility of CB's who have effectively married their reputation with transitory narrative.

Rising oil prices have added to the woes of inflation which started post pandemic mainly on the issue of fractured supply chains unable to cope up with the pent up demand. Suddenly there have been a slew of reports which are predicting a more than 100 $/ bbl on the Brent crude, it is trading around 85$/bbl currently, the level last seen in 2018. I keep writing that "predicting especially about the future" is a risky proposition. This insight is not my original and the remark can be attributed to writer Arun Shourie. Issue of quote source apart, the real point to cogitate should be that even when the track record of prediction is so dismal why people continue to make them and believe it to turn out correct "this time".?

Case in point are oil prices, Oil went to an all time high in 2008 to the level of 140 USD/bbl, it dropped to the lows of 40$/bbl next year post GFC. Then it rose again steadily to upwards of 110$ and fell precipitously to 30$/bbl levels in 2016. Think of it, this has been the case with one of the most followed, researched and vintage commodity, where people can dissect and illuminate even about the tensile strength of the metal rod which connects the shaft to the oil drill. The question to ask is why the predictions would turn true this time round, frankly they won't.??

I have written previously that this sort of prediction of extrapolating current trends in the future indefinitely belies intellectual lethargy. There have been numerous examples in the past, one being the famous Malthusian prediction. Thomas Malthus was an 18th Century English economist and extrapolated the trends on population growth and food production prevalent in his time to future predicting the ultimate doom of mankind by the hands of famine and disease. It turns out that the human spirit of survival doesnt follow a linear malthusian line. It responds in unpredictable (often ingenious) ways. Hence with any prediction one needs to be equally cognizant of the response it will generate. A successful business venture will bring competitors, a monopoly will get alternatives in response (Crude oil and shale), a virus will be followed with a vaccine and none of it will be evident on the day one. Excel forecasting in a sense is also afflicted?by the same disease, not appreciating that every action will create its?own reaction.

Currently the climate summit is on where the glitterati?are talking about the irreversible damage to earth. Does this mean that the fossil fuel industry is doomed, not necessarily. One needs to take into account the reaction of the group which will be impacted negatively, the backlash by them and the spirit to survive might give rise to some inventions which we don't know currently. A new superlative IC engine design, some fuel variant, anything can happen.?

But are predictions entirely useless? No, they provide us with an intellectual framework to see things. We just need to recalibrate how we use predictions by having the humility to acknowledge our ignorance about the future reactions. Devoid of dogmas one can recalibrate their bets on every step, which is how it should be.??