Policy makers, are human and far from perfect planners.

For all the resources and knowledge that the markets seemingly digest with great efficiency and timeliness,  business and government leaders both stop short of taking on the problem of rare events.  Perhaps it’s for the reasons that John Camillus outlined in HBR May 2008, that

“Companies… can’t develop models of the increasingly complex environment in which they operate.”

Certainly when stakeholders have competing interests, decision-making is often difficult.  But I’m wondering in light of the number of “unimagined,” or “unpredictable” events  whether it is merely the  impossibility of predicting a rare event that leads to blindness and wreak havoc on balance sheets.  BP recently estimated that the DeepHorizon Well disaster would cost a total of $40bn, a record loss for the company that knocked down its pre-tax profits but did not knock the company out.

The ever-changing environment further seems to diminish our willingness and resolve, as a society to be proactive and tackle the possible train wreck in our future. Public policy and governments intentionally move slowly, often requiring at least one of three pressure points to force an issue: a pressing problem, politics or the clear consensus on a particular agenda item. Oddly this is often characterized as the Garbage can approach to Policy making shown here:

In the US the debate and legislative agenda setting process is quite contentious.  The Congressional Budget office is no longer universally viewed as the objective arbiter ;and even the supreme court’s  independence  appears tainted by  partisanship.

Who leads and who follows is difficult  to figure out in the best of times, with consensus  rarely making it easy for us to gain some clear forward movement on a variety of locked issues.

Commentary on the vaunted aftershocks printed in the New York Times as the disaster first unfolded, characterizes the problem in Japan as one of hubris.

Japan’s vaunted scientific and technical prowess has taken on the character of a kind of myth, and that myth has deluded the nation’s politicians and business leaders. But it has been obvious all along that science and technology can deal only with things that fall within the range of what may be expected. And also that it is all too likely that some things that happen in our lives will indeed be “beyond all expectations” — and that it is precisely for this reason that we are able to live those lives. What, after all, would be the meaning of a life in which everything that happened was “within expectations”?

The philosophical issue is a luxury in the face of true uncertainty.  At this moment, no one knows, or can know, what the consequences of all these changes will be.  The markets continue to fill this void and do what they do best– provide clear interpretative signals of hope, faith or despair.  They churn out at amazing speed, bite-size digestible cues devoid of emotion, the technical analysis that crunches large quantities of data often sends out a  beacon to guide future activity or give a verdict on the event.

But something is different.  Today, the message is not directional.  Perhaps we have hit a new realm of complexity.  Certainly the market research reports keep coming; but the outlook is one of vast uncertainty.  The hyper-kinetic global market is confronting the cross currents of disrupted supply chains rendering the models incomplete and making impossible their estimation of  just how far, or how long the economic shocks will reverberate.  Again, the echoes printed by the NY Times:

“The outlook is unusually uncertain, ”  Mohamed El-Erian of Pimco characterizing the market fall out of Japan’s crisis.

” Uncertainty hangs like a cloud over the future of the global and American economy, ”

“The uprisings, the Persian Gulf, Japan: It’s very likely that the global economic impact will be larger than most people now imagine,” Bernie Baumohl, of the Economic Outlook Group said. “Electricity and gasoline prices will stay high and consumers are nervous. Guess what, that’s not an atmosphere conducive to corporations wanting to hire workers.”

If ever there was clarity and a clarion call for clear vision, faith and leadership from Washington, that time is now.  But  public policy process offers no clear resolute answer.  The routine or over reliance on patterns that repeat to help us plan are insufficient.  We must face the reality that our future is exceedingly less likely to  resemble the present and will differ dramatically from the past.  Some changes will continue to occur incrementally, slowly as it takes time for the impact of the events such as the absence of critical parts or the shortage of oil to work its way to our shores.  Our over confidence in yesterday’s routines and outcomes is understandable.  In the face of disaster, however our instincts have to kick in and we hope that whatever plans we’ve made they will help sustain us going forward.  Insurance for our cars, homes, health and business insulate us from the unexpected costs.  The Federal government continues to respond and step in when business or people find it impossible to fully underwrite the risk of rare events, it’s why the government sells flood insurance and offers guarantees to our bank deposits.

The Science-policy Gap

Note that the level of confidence in a particular model tracks differently for the scientific community than it does for society at large. Scientists rely on the dissemination and debate of inferences drawn from various model representations that largely occur in publication, with citation and competitive grant process.  In contrast, social policy typically requires a weight of evidence or a strong threshold of agreement within the scientific community before confidence arises.   Further details are  available in the original article entitled Uncertainty as Information: Narrowing the Science-policy Gap, published in the Ecology and Society Journal.


The verdict is out

My own uncertainty stopped me from publishing this last week,  so I decided the first step was to hit the button and let it go.

In spite of the change in the headlines, the  atmosphere of doubt continues to make us feel unsteady and every foothold  appears loose.  This past week, uncertainty forced itself front and center with the headline Air Strikes in Libya, questions back home.  In this  New York Times story described President Obama’s decision  as ” a new dynamic whose consequences were especially hard to predict.”

In the last few years, the world has lived through, the unthinkable, surviving more than one “beyond all expectations” disaster. It certainly is not merely a testament to our resilience, but at every occurrence, I’m disturbed by  the absence of credible back up plans or adequate preparations .  In the US, complex financial trading  was not the cause for the financial meltdown of 2008. Rather than sustaining the myth of their mastery, the titans of finance when finally caught playing hot potato amidst an ever-widening, global market,  managed to  shatter the illusion that they were prudently managing and pricing ever-present risks.

In the Middle East, I share Thomas Friedman’s mixed sentiments

” As one who has long believed in the democracy potential for this part of the world, color me both really hopeful and really worried about the prospects.”

Yes, the situation raises both fear and hope as the future of the region,  abruptly severs itself from the past, is just too wide open. We’ve seen how Japan’s greatest natural disaster is quickly being dwarfed  by another event, the unfolding nuclear power crisis.  All in all, the odds are favoring unpredictability.

In each case, the initiating event was a difficult problem to predict, as limited occurrences make each nearly impossible to model the timing of their occurrence with accuracy.  Were these events inevitable? No, there was no certainty that they would occur, but there was a small but distinct possibility and yet we deferred plans and preparations for this rarity.

My Father, 20 years ago began to sell Long term care insurance.  At the time, he was in his 70’s and incredibly healthy.  He himself saw no merit in buying it, but believed strongly in the merits and value of the products.  As it turned out, he died abruptly so he was right, he didn’t need it.  In the US, we stopped building and authorizing new nuclear power plants after mistakes in the control room at Three Mile Island raised the nation’s consciousness to the consequences of a serious error.

Only in the midst of concerns about global warming and rising global demand for scarce fossil fuels that have increased the risks associated with extraction from more complex environments has nuclear power been considered a possible alternative. But the news from Japan has  reawakened the consciousness of  the lasting threats of an error outweighing the possible benefits.

History of the use of nuclear power (top) and ...

Image via Wikipedia

In the face of uncertainty, our response is merely to rely on what we know, and accept the current system limitations and downsides  Policy wise, to satisfy the  increasing appetite for energy and electricity, the US remains dependent on fossil fuels and small investments in alternatives.

At the end of the day, it’s not the complexity associated with rapidly accelerating changes that we can’t seem to face.  Maybe, like my father, it’s our unwillingness to apply the logic to ourselves, and believe that it’s a risk we actually might have to face in which case the costs outweigh the potential benefits for the possibility we can’t imagine as real.  Or, maybe it’s merely the  magnitude of some risks, the rare ones that we can’t hedge, can’t contain and so we  fail to even address.   I’m not merely wondering why so  many miss  Nassim Taleb’s analysis of Black Swans.

I suspect we will need something else.  For example, a little more focus and outrage than what we have manage to muster domestically in the aftermath of these disasters.