How French Revolution helps make economic predictions

ANALYSIS, France and Global — There is a problem with prediction. Always has been.

(I am going to wade into the historical and allegorical, into 2 centuries past. By doing this, I hope to shed some light on some alternate views on prediction of change events, and the differences in viewpoint between myself and Nassim Taleb, and his book ‘Black Swans’ on predicting change and usefulness of prediction.)

There was a problem if you lived in France predicting the revolution of 1789. Some signs were there in hindsight. But the reality is predicting such an unpredictable event was difficult… especially, if you were going ‘present forward’.

Do you think the King’s (Louis XVI) Scientists and his advisors may have been in trouble after that event?

I wonder what government predictions in 1938 in Poland looked like?

And Herbert Hoover suffered the anonymity of a president best remembered for a concrete dam, any work he did overshadowed by the 1930s Depression. (The full extent of the Depression actually took a while to unfold, like the French Revolution)

More on the French Revolution shortly. Let’s start with the present.

Past forward predictions

Most people, including a large number of analysts, start predicting from a ‘present forward model’.

A lot of planning is done using a spreadsheet moving ‘present forward’…

A lot of analysis contains assumptions about ForEx, oil or commodities prices. Assumptions which are wrong.

Who accurately predicted the price of any of the major currencies? You can’t. Well not over a significant time frame with current methods.

We need to acknowledge that. We need to acknowledge that a series of models on which we base forecasts can not predict factors over which we do not have control, or which there is a market basis.

Markets can and do act in pretty volatile ways.

Citizens, most especially the French, can act in volatile ways. It has a lot to do with the geography and centralisation tensions of Paris.

Louis XVI learnt that, but no royal court in Europe would have known the outcome in 1789.

So am I saying is prediction useless? Yes and No.

Some do say prediction is pointless. I disagree.

Predictions set benchmarks and influence outcomes

In shares for example: Prediction often informs a market and becomes set as part of a market. Insights form part of the price in a market whose conditions are known.

On the other hand, in the late 1990s I said initial dot-com valuations were inflated not on the strength of numbers, but on the strength of value delivered to customers of dot-coms. But of course, as so often, ‘niche-expert voices’ said otherwise and were ‘priced in’.

Predictions that are publicised often become part of the information that shapes an outcome. A feedback loop. The eventual adjustment in dot-com share prices arose from the excluded information of traditional business indicators being ‘re-priced in’.

And, a projection often sets the benchmark for ‘over or under’. They set the parameters.

So predictions often act to cause, or be involved in causing events.

It was John Kennedy prediction of a man on the moon, which acted as a declaration of priorities and set the course for the actuality.

But Kennedy started future-backward, declaring a simple future goal. Sometimes a prediction can become an actuality by the declaration and support of its achievement.

Innovation: Future Backwards Planning

But you can predict the possible range of future possible events, and perhaps we could have predicted the French revolution as one possible outcome among others.

How?

France 1780s

The American revolution of the 1770s was largely backed by the involvement of the French. Some historians say Ben Franklins’ calls on the Kings Purse were so frequent that they nearly bankrupted the King.

But the Franklin knew about grandeur, and was according to many historians, more popular in Paris at the time than he was in the Americas.

(His co-signers of the Declaration of Independence were often suspicious of his loyalties given his stints in London, and it has been suggested with some basis more than a little jealous of his fame.)

Of course the French involvement in an American Civil War (after all they overthrew the government) was a lot about beating England, a response that could have been predicted.

Louis XVI paid a heavy price, and the French armies were influential in the war. But as with so many wars, his citizens paid for it, and some well-informed citizens were perhaps more than inspired by its example.

Food supply issues and excesses of leadership, as well as financing the removal of another ‘sovereign power’ led to the events of 1789-1792.

The revolution was pre-cursed by artworks like David’s Oath of the Horatii.

There was long grumbling about food and rotten food.

The First and second Estate were more interesting in preserving their power-base.

The Third Estate (everyone except the Royal Court and Catholic Church) now formed a large group. The enlightenment and various inventions and ideas of the time had created a climate that gave the bourgeois middle class the ability to remove the King.

And, the American Revolution potentially formulated the idea.

Yet a planner sitting anywhere in Europe in 1788 would not have foreseen it.

In the end the First French Republic was declared in 1792. Napoleon arose out of the bloodthirstiness of Robespierre and wavering of others. The Royal backlash across Europe arose from that; and Bismarck, the creation of nation states of Germany, and later Italy, arose from that. World War II arguably rose from the 1870s and 1910s.

But predicting the events of 1792 in 1788 would have been impossible. Let alone World War II.

So what could a planner have foreseen in 1788?

Well, he could have foreseen risk factors. Indicator Flags.

• Middle class mobility
• Disquiet over food
• The American Example
• The rise of science and reason
• Faster spread of information

He could have counselled the king to avoid the grounds for a revolution. He couldn’t have been specific. Machiavelli wrote some excellent words on this.

We don’t know when we get prediction right, because we often avoid the events predicted. But this doesn’t mean its not useful.

We can predict risk factors and indicators of change. And that is useful in many instances and circumstance.

Finally, A Thank you

So here’s a thank you to all those nameless faceless men of government and beyond: who avoided wars, plagues, famines and revolutions.

Yet the French Revolution, and the American before it, led to many positive social changes, and directly or indirectly much of the modern world.

So a thank you to those who took charge of the events of the day and shaped great modern cities like Paris and Boston.

History is what happens when you are making other plans.

Take care,

Christopher

Connect to Christopher Hire.

Speaker. Author. Editor-In-Chief. Executive Director of Innovation, 2thinknow.

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