"Why we expect that tomorrow won't be brighter
By Dan Gardner, December 31, 2008 10:02 AM
Michael Ignatieff is 61 years old. This is a significant fact in light of the Liberal leader's recent comments about the economic crisis. "This country is facing a very serious economic crisis," he said on CTV's Question Period. "It dwarfs anything we've seen, certainly in my lifetime." Really? Does the current crisis "dwarf" all others since the blessed day -- May 12, 1947 -- Michael Ignatieff was born? It "certainly" does, says Ignatieff.
I say it doesn't. In fact, I think that statement is ludicrous. No, I am not accusing Ignatieff of dishonesty. I think he sincerely believes what he said, just as many others who have made similar statements believe they are true. I simply think he is wrong. In fact, I think he has fallen prey to a common foible of human thought. Psychologists call it "hindsight bias." First, to the facts.
Does the economic crisis dwarf all others since the Second World War? I can think of no measure -- for Canada or the industrialized world -- that comes even close to supporting that conclusion. Negative growth? That's happening but what we're seeing so far isn't as severe as the recessions of the early 1990s and early 1980s. Unemployment? It's going up but it's still remarkably low. Inflation? Nope. Deflation? Not so far. And the most respected economic forecasts see nothing different in the future. The OECD even calls for Canadian unemployment to peak at 7.5 per cent, which is the lowest it ever got in the halcyon days of the 1990s.
But still, you may say, the forecasters missed the crisis. Who's to say they won't be wrong again?
There are so many ways things may turn out worse than expected. The American dollar may collapse. A deflationary spiral may set in. You name it. These awful things could even happen in sequence, one tumbling into another like falling dominoes. This is the stuff of catastrophe. Looking ahead into 2009 and beyond, it's hard not to feel a cold shiver. This is a legitimate concern. But fears based on what could happen in the future must be treated cautiously for several reasons. A critical one is rooted in psychology.
The uncertainty of the future makes it a blank canvas. On that canvas, we may paint whatever we imagine. And at a time like this, when fears crowd the mind, our imaginations tend to conjure monsters. The past is entirely different because there's no uncertainty in it. We know what happened. Even if what happened was bad, we know life carried on and things got better. Of course, people living in the past didn't know how things would turn out because it was, for them, the present. When they looked ahead, they saw what we see now -- an uncertain future -- and they were just as prone to be frightened as we are at this moment.
When we compare our current troubles with other times -- as Michael Ignatieff did -- we must factor in the uncertainty and fear experienced by people in the past. Otherwise, we're comparing apples -- apples that may or may not contain razor blades -- with oranges. But here's the kicker: Thanks to the cognitive illusion of "hindsight bias," it is extremely difficult to appreciate the uncertainty experienced by people in the past.
Here is a simple question: How likely is it that there will be a federal election in 2009? Got an estimate? Good. Now, imagine it is Dec. 31, 2009 and I ask you to think back to the start of 2009. Back then, how likely did you think it was that there would be an election in 2009? Your two answers should match. But they almost certainly will not. Instead, they will deviate in a predictable way: If there actually was an election in 2009, your second answer will be higher than your first; if not, the second estimate will be considerably lower.
I know this because psychologists have conducted many tests like this and the results are consistent: Knowing an outcome makes it seem much more likely than it does if we do not know it. That is "hindsight bias." "The effect of hindsight bias is to drain the uncertainty out of history," wrote a certain author in a fabulous book that will be available in an inexpensive paperback edition Jan. 20. "So here we are, standing in the present, peering into the frighteningly uncertain future and imagining all the awful things that could possibly happen. And when we look back? It looks so much more settled, so much more predictable. It doesn't look anything like this. Oh yes, these are scary times."
This is how a smart man like Michael Ignatieff can be so very wrong about this economic crisis. The worst in his lifetime? In 1973, Michael Ignatieff was 26 years old. That year, the oil shock drained gas stations and crippled western economies. Through most of the 10 years that followed, things got steadily worse. By the early 1980s, unemployment was 12 per cent -- nearly double today's rate. Economies were pummelled by a combination of recession and inflation that defied conventional economics. Homeowners were crushed by mortgage rates of 20 per cent or more. By any measure, the economic conditions then were far worse than those we face today. And just as we, today, fear the future will be darker than the present, so we did then.
No one knew 1983 would be a watershed. In fact, when people in that era looked to the future, what they saw scared them silly. "For the first time in the history of our country, a majority of people believe that the next five years will be worse than the past five years," President Jimmy Carter noted in his notorious "malaise" speech. "We've always had faith that the days of our children would be better than our own. Our people are losing that faith." The year was 1979. Carter's take on the public mood was all too accurate. A Gallup poll question that asked "are you satisfied with the way things are going in the United States" hit a record low -- 12 per cent -- that year. That bleak figure was matched in the depths of the recession of 1992. And again this summer. (In October, it dipped slightly to a dismal nine per cent.)
Predictions about the future were uniformly grim. From The Population Bomb to The Limits to Growth, experts warned of resource shortages and massive famines. President Carter's address spoke specifically to fears that oil supplies were running out. "The energy crisis is real. It is worldwide. It is a clear and present danger to our nation," he declared. This was also the year of the Soviet invasion of Afghanistan, which was followed by a steady escalation in superpower tensions and fears of nuclear war. The most talked-about television drama of 1983 was The Day After, a horrifying look at life in a small American town before and after the missiles fly.
Of course, we know famine, shortages, depravation, war, and annihilation didn't happen. In fact, the 20 years after Jimmy Carter's depressing speech were far more peaceful and prosperous than even the rosiest optimist would have predicted in 1979. We know that. And knowing that makes it hard for us to feel the fear of the time -- and easy for us to falsely conclude that our troubles are the worst in the six decades of Michael Ignatieff's lifetime."
Logical deduction... has fallen to a new level in Ottawa!
By Dan Gardner, December 31, 2008 10:02 AM
Michael Ignatieff is 61 years old. This is a significant fact in light of the Liberal leader's recent comments about the economic crisis. "This country is facing a very serious economic crisis," he said on CTV's Question Period. "It dwarfs anything we've seen, certainly in my lifetime." Really? Does the current crisis "dwarf" all others since the blessed day -- May 12, 1947 -- Michael Ignatieff was born? It "certainly" does, says Ignatieff.
I say it doesn't. In fact, I think that statement is ludicrous. No, I am not accusing Ignatieff of dishonesty. I think he sincerely believes what he said, just as many others who have made similar statements believe they are true. I simply think he is wrong. In fact, I think he has fallen prey to a common foible of human thought. Psychologists call it "hindsight bias." First, to the facts.
Does the economic crisis dwarf all others since the Second World War? I can think of no measure -- for Canada or the industrialized world -- that comes even close to supporting that conclusion. Negative growth? That's happening but what we're seeing so far isn't as severe as the recessions of the early 1990s and early 1980s. Unemployment? It's going up but it's still remarkably low. Inflation? Nope. Deflation? Not so far. And the most respected economic forecasts see nothing different in the future. The OECD even calls for Canadian unemployment to peak at 7.5 per cent, which is the lowest it ever got in the halcyon days of the 1990s.
But still, you may say, the forecasters missed the crisis. Who's to say they won't be wrong again?
There are so many ways things may turn out worse than expected. The American dollar may collapse. A deflationary spiral may set in. You name it. These awful things could even happen in sequence, one tumbling into another like falling dominoes. This is the stuff of catastrophe. Looking ahead into 2009 and beyond, it's hard not to feel a cold shiver. This is a legitimate concern. But fears based on what could happen in the future must be treated cautiously for several reasons. A critical one is rooted in psychology.
The uncertainty of the future makes it a blank canvas. On that canvas, we may paint whatever we imagine. And at a time like this, when fears crowd the mind, our imaginations tend to conjure monsters. The past is entirely different because there's no uncertainty in it. We know what happened. Even if what happened was bad, we know life carried on and things got better. Of course, people living in the past didn't know how things would turn out because it was, for them, the present. When they looked ahead, they saw what we see now -- an uncertain future -- and they were just as prone to be frightened as we are at this moment.
When we compare our current troubles with other times -- as Michael Ignatieff did -- we must factor in the uncertainty and fear experienced by people in the past. Otherwise, we're comparing apples -- apples that may or may not contain razor blades -- with oranges. But here's the kicker: Thanks to the cognitive illusion of "hindsight bias," it is extremely difficult to appreciate the uncertainty experienced by people in the past.
Here is a simple question: How likely is it that there will be a federal election in 2009? Got an estimate? Good. Now, imagine it is Dec. 31, 2009 and I ask you to think back to the start of 2009. Back then, how likely did you think it was that there would be an election in 2009? Your two answers should match. But they almost certainly will not. Instead, they will deviate in a predictable way: If there actually was an election in 2009, your second answer will be higher than your first; if not, the second estimate will be considerably lower.
I know this because psychologists have conducted many tests like this and the results are consistent: Knowing an outcome makes it seem much more likely than it does if we do not know it. That is "hindsight bias." "The effect of hindsight bias is to drain the uncertainty out of history," wrote a certain author in a fabulous book that will be available in an inexpensive paperback edition Jan. 20. "So here we are, standing in the present, peering into the frighteningly uncertain future and imagining all the awful things that could possibly happen. And when we look back? It looks so much more settled, so much more predictable. It doesn't look anything like this. Oh yes, these are scary times."
This is how a smart man like Michael Ignatieff can be so very wrong about this economic crisis. The worst in his lifetime? In 1973, Michael Ignatieff was 26 years old. That year, the oil shock drained gas stations and crippled western economies. Through most of the 10 years that followed, things got steadily worse. By the early 1980s, unemployment was 12 per cent -- nearly double today's rate. Economies were pummelled by a combination of recession and inflation that defied conventional economics. Homeowners were crushed by mortgage rates of 20 per cent or more. By any measure, the economic conditions then were far worse than those we face today. And just as we, today, fear the future will be darker than the present, so we did then.
No one knew 1983 would be a watershed. In fact, when people in that era looked to the future, what they saw scared them silly. "For the first time in the history of our country, a majority of people believe that the next five years will be worse than the past five years," President Jimmy Carter noted in his notorious "malaise" speech. "We've always had faith that the days of our children would be better than our own. Our people are losing that faith." The year was 1979. Carter's take on the public mood was all too accurate. A Gallup poll question that asked "are you satisfied with the way things are going in the United States" hit a record low -- 12 per cent -- that year. That bleak figure was matched in the depths of the recession of 1992. And again this summer. (In October, it dipped slightly to a dismal nine per cent.)
Predictions about the future were uniformly grim. From The Population Bomb to The Limits to Growth, experts warned of resource shortages and massive famines. President Carter's address spoke specifically to fears that oil supplies were running out. "The energy crisis is real. It is worldwide. It is a clear and present danger to our nation," he declared. This was also the year of the Soviet invasion of Afghanistan, which was followed by a steady escalation in superpower tensions and fears of nuclear war. The most talked-about television drama of 1983 was The Day After, a horrifying look at life in a small American town before and after the missiles fly.
Of course, we know famine, shortages, depravation, war, and annihilation didn't happen. In fact, the 20 years after Jimmy Carter's depressing speech were far more peaceful and prosperous than even the rosiest optimist would have predicted in 1979. We know that. And knowing that makes it hard for us to feel the fear of the time -- and easy for us to falsely conclude that our troubles are the worst in the six decades of Michael Ignatieff's lifetime."
Logical deduction... has fallen to a new level in Ottawa!
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