From UnHerd, April 20:
Wolfgang Munchau is the Director of Eurointelligence and an UnHerd columnist.
Welcome to the age of uncertainty
Sometimes, you’ve just got to admit that you don’t know the answer to a question. When will the Iran war end? I don’t know. What will it do to the global economy? I haven’t the foggiest. I may have a hunch that it is going to run a little longer than we expected. Then again, something unexpected is bound to intrude and change things. And I’ve no clue what that might be.
But what I can do — rather than offer a range of uncertain forecasts — is assess the range of plausible outcomes to this conflict and consider how each will affect countries and people in different ways. There’s no scientifically accurate way of eliminating uncertainty; so let’s embrace it. This is not a trivial exercise: I can recall only a few times in my own life when the range of possible geopolitical and economic outcomes, good or bad, has been as wild as it is today.
With his “known-unknowns” and “unknown-unknowns”, Donald Rumsfeld has actually provided us with a useful starting place to assess outcomes. The unknown-unknowns are often more important, but they are beyond our reach. “Whereof one cannot speak,” said Wittgenstein, “thereof one must be silent”. These are what economist Frank Knight was referring to when he coined the notion of “unquantifiable uncertainty”, or true uncertainty, as distinct from outcomes that carry a small probability.
So while little of value can be said about the unknown-unknowns, known-unknowns are generally worthy of deeper reflection. We all know about the truly bad scenarios stemming from the war. Airlines may run out of kerosene in six weeks; the world could run out of fertilizer and basic chemicals if the blockade continues for much longer. We know that Asia would be hit the hardest, followed by Europe, with the US affected least.
There are also potentially good outcomes. Europe has been offered a reminder that its investments in energy independence are worthwhile — and this includes both nuclear and renewables. The European Greens were mad to oppose nuclear power, but they were right about renewables, if only from the perspective of energy independence.
Beyond the war, which should end eventually, there are other positive economic scenarios coming down the track. The most interesting part of the latest World Economic Outlook by the International Monetary Fund was not the central forecast, the risk of global recession: but, rather, the wide range of possible scenarios it also weighed up. We truly live in a world of Knightian uncertainty.
I’m talking here about plausible scenarios, those that have a reasonable chance of occurring: the known-unknowns. Of particular interest are those scenarios at the extreme ends of the spectrum. Some middle-of-the-road scenarios are plausible, of course: economic forecasters always use them for their forecasts. But they have no higher probability of occurring than the good or bad ones. What you really want is information about the spread of outcomes, not the average....
