Pollsters, stock pickers, and political prognosticators have been spectacularly wrong in their predictions in the recent past—so frequently that doing so has become the norm. Their overreliance on historical performance to attempt to predict the future has often proven to be fallacious.
Twenty years ago they might have been justified in presuming that what happened in the past will prove to be an accurate guide about what may happen in the future, but in the era of paradigm shifts and serial disruption—that has changed. Historical performance no longer serves as an accurate guidepost to the future in a whole host of areas.
One need look no further than the outcome of the 2016 presidential election, the Brexit vote, or the Colombian peace referendum to see how spectacularly the pollsters and bookies got it wrong. Very few pundits predicted that Donald Trump would win, with those who missed it having relied too much on what used to determine voter sentiment and how that was measured.
While UK voters were broadly expected to reject Brexit. Colombian voters were widely expected to embrace the originally signed peace agreement with the FARC rebels (at the time), they ended up doing exactly the opposite.
Are these misses resulting from outdated polling methods, a failure to truly understand the pulse and intention of voters, missing the boat completely, or the combining of some of these variables? Have voters around the world become so fickle and the rise of populism so unpredictable that accurately predicting election outcomes is no longer possible?
Something similar may be said about historical U.S. economic performance, which would suggest that the United States has been due for a recession for some time. According to the National Bureau of Economic Research, which has tracked recessions on a monthly basis since 1854, between 1854 to 1919, there were 16 economic cycles, the average recession lasted 22 months, and the average economic expansion was 27 months. From 1919 to 1945, there were 6 cycles, recessions lasted an average of 18 months and expansions for 35 months. The period from 1945 to 2009 saw 11 cycles, recessions lasted an average 11 months, and expansions an average of 58 months—so recessions got shorter and expansions longer over time.
Since the third quarter of 2009, the U.S. economy has expanded every quarter but one (in 2014) and is poised to continue the trend through at least 2018. Given that the U.S. economy still remains the de facto engine of the global economy, far outpacing Europe and most other developed economies, there would appear to be little reason to believe that there are two consecutive quarters of negative growth or real GDP in the near-term future (which would constitute the beginning of a recession).
On this basis, current U.S. economic performance is blowing statistics for the past 170 years out of the water, with 80+ months of post-recession growth. This is evidence that technology, innovation, creativity, and entrepreneurialism, which are so prevalent in the U.S. economy, are translating into extended economic gains that literally swim against the tide of history.
That said, the change in global economic dynamics, with a transition away from developed country domination of the global economy in favor of emerging economies, has had a profound impact on economic statistics. Trade flows have shifted away from the predominant north/north and north/south orientation toward a south/north and south/south orientation. As Chinese outward foreign investment continues to expand and given the recent change in the U.S. tax law, it is difficult to predict what the impact on corporate asset valuations and profit will be in the longer term.
As these examples illustrate, there is great danger in presuming that what has happened in the past will provide any indication of what will happen in the future. This has as much to do with the rise of nationalism as it does with the free flow of information, instant communication, and the voice of voters who were previously either shut out or not heard having become integrated into the political process.
It also has to do with the need to integrate previously ignored or unforeseen factors into the equation and discarding the outdated and increasingly mistaken view that the way it was done in the past is the way it will be done in the future, simply because “it has always been done that way.”
To those political pundits who continue to proclaim that they know the outcome of the next election anywhere in the world, those stock market prognosticators who swear to their brethren that they know the future movement of stocks or the market, and those global leaders who honestly believe that they are in tune with the pulse of their people—they are probably all wrong. Historical performance is no longer a reliable guide to the future. The sooner we all admit that the better off we will all be.
Daniel Wagner is CEO of Country Risk Solutions and author of the new book “Virtual Terror.”
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.