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(Experimental) How to Make Accurate Business and Economics Predictions

Sometimes you don't need any special methods, unique systems, or mental models to accurately predict what will happen next in the business world and economy.

You only need to look at who benefits, how much they benefit, and who has the most power to get what they want.

In other words, the only principle you need for making accurate predictions sometimes is WIIFT.

Silicon Valley Bank Crash

Some businesspeople were saying that the government would NOT bail out SVB.

After all, it's not the first time in history banks had mismanaged funds and left themselves exposed to greater risk than they could manage, causing dire consequences.

So, some people were saying that the government would make an example of SVB to encourage banks to start behaving more responsibly in the future and make sure that SVB acknowledged and understood the consequences of their actions. (I first heard investor Ian Dunlap sharing this prediction on the Earn Your Leisure YouTube channel.)

But, the way I saw it, the government could either make an example of SVB for a potential future benefit or serve their current self-interests for a more immediate benefit now. And, they were far more likely to do the latter:

  • Previous behavior from the government showed they're trying to slow down a recession: and leaving SVB to figure it out on its own would've only accelerated the US closer to a recession sooner.
  • A presidential election is fast approaching: and I doubted Biden would want to have SVB's bank failure (and the surrounding damage from it) on his record when he runs for re-election.

So, I predicted the government would step in.

And they did.

Sen. Ron Wyden’s Billionaires Income Tax

I also predicted this wouldn't come to pass.

My personal feeling was that the government would want to keep the wealthy as its allies.

And it's hard to keep an ally happy when you're digging your hands further into their pockets against their will.

And, in the end, it didn't pass.

Certainly an oversimplification of all of the events that took place, but WIIFT was enough of a factor for my prediction to be right nonetheless.

Banning AI

Moving into future predictions now, Elon Musk, Steve Wozniak (co-founder of Apple), and over 1,100 others signed an open letter calling for a 6-month ban on creating powerful AI.

They want to halt ChatGPT and I don't think that's going to happen (at least, until it's too late/too damaging). For now, the government has too much to gain from the advancement of AI.

So, I believe that this open letter will go ignored/rejected.

The USA Recession

The big recession is going to happen. And, companies will be the ones to make it worse (NOT the government!).

Some may think that the recession will be largely damaging and that when things start to really fall apart, the blame will be on the poor decision-making of the government for things going from bad to worse.

And I agree that the government will probably make some mistakes. This is a first in history, so how the government approaches handling the crisis will be more of an "experiment" than a prepared response based on previous historical events they can look to for guidance.

However, I think that most of the blame will actually be on the companies.

When a recession happens, people spend less money. And when people spend less money, companies lose that revenue. When revenue is lost, the companies (that were swimming naked) often need to cut costs to stay afloat. And, most companies' biggest expense is their labor costs.

So, rather than thinking about the whole of the economy, and doing their best to keep people employed so the recession can end sooner, companies will focus on their own self-interests and begin initiating more layoffs to save themselves.

More people without a job means more people with less money to spend, causing the recession to last longer and more damage to the economy.

Meanwhile, the people in the government will be facing the large expectations of the public and be doing everything they can under the pressure of the people (even if "what they can" isn't good enough/leads to costly mistakes).

Lucio Buffalmano and John Freeman have reacted to this post.
Lucio BuffalmanoJohn Freeman

Nice on, Ali.

Some great examples, and a fantastic reminder here:

Quote from Ali Scarlett on April 7, 2023, 8:15 pm

In other words, the only principle you need for making accurate predictions sometimes is WIIFT.

Then, after that, you can expect some ad-hoc explanation on why it was the best option for all, or whatever positive spin one can put on it.

Ali Scarlett has reacted to this post.
Ali Scarlett
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