First post for 2014

This is a slightly modified version of my column in MINT that appeared today.  You can read both and figure out where the modifications appear.

A New Year message

The human inability to predict is closely intertwined with the inability to anticipate risks and crises

My good friend Vineet Rai, partner in Aavishkaar Venture Management Services (AVMS), wrote in his annual letter to his colleagues that he might have continued working in his previous job—which he held more than a decade ago—had his boss then agreed to a small request he made. Life could have turned out rather differently. Today, he has been nominated to a G-8 task force on social impact investing whose aim is to galvanize the development of an effective social impact investment market.

Like Vineet Rai, Arvind Kejriwal, the chief minister of Delhi, had referred to the extraordinary developments of the last three years in a recent interview: “I grew up in a very religious family. But the scientific temper ingrained in me during my time at IIT Kharagpur made me a non-believer. But everything that has happened in the last three years has made me believe in God once again… I am convinced all I have to do is continue with my work and leave the rest to God.”

The script might have played out rather differently had the Lokpal Bill been passed in 2010 itself.

In his book, Success vs Joy (first published in 2004 and again in 2013), Geet Sethi makes an important point about individual efforts and outcomes: “When I look back, there have been millions of circumstances and situations that arranged themselves in an intricate pattern that allowed me to be what I am. It would have been pointless to try to comprehend all of these, let alone to try to manipulate them all as I went. The influences on our course through life are far too many to understand, and the great majority of them are beyond our control.”

Belief in God is nothing but humility—acceptance of the insufficiency (but the necessity) of one’s own efforts in striving for desired outcomes. It is precisely because of the need for millions of circumstances and situations to arrange themselves in a particular fashion that we are inherently incapable of predicting the future. We often get it spectacularly wrong. For example, that is what I achieved with my expectations for the euro currency (pessimistic outlook) and with gold (optimistic outlook) in 2013.

But we refuse to concede our limitations and engage in predicting the future simply by extrapolating the recent past. That is what the editors of Financial Times did on 31 December. By most accounts, year 2013 was an extraordinarily successful year for investors in developed countries. It was not due to any durable economic recovery in the US since even European stocks performed just as impressively. As Christopher Wood, the Asian strategist for CLSA, said so aptly in a recent missive to his clients, “Financial rent seeking, driven by the leveraged search for yield, has revived much more convincingly since 2008 than the growth rate of underlying economies.” Yet, what do the editors of Financial Times do? They extrapolated 2013 into 2014 and predicted more of the same for the New Year.

The human inability to predict is closely intertwined with the inability to anticipate risks and crises. We are not wired to do that. We are only wired to anticipate the last risk that triggered the last crisis. That is the case whether it is with macro planners or households preparing for emergencies in a vacation. We can only prepare for all that went wrong in the most recent vacations. Indeed, as history recedes from memory, the latter simply ignores it only for the former to repeat itself all over again.

Despite these, two things keep us engaged in the act of predicting. One is that some of us are in the job of making predictions. We do not have a choice. We can only try and do it less and less unintelligently as we age. The other thing is our ego. Some of us consider ourselves as elites and arrogate to ourselves the right to foist our predictions on others. Often, they are our wishful thinking rather than an objective assessment of the present leading to a set of possible outcomes with probabilities.

An example of this is Salil Tripathi’s satire on India under Modi as the Prime Minister published in MINT on 28 December. He could not imagine an India doing well under Modi. That would hurt his ego. He cannot be wrong. His imagination cannot permit that. It did not matter that, in his satire, India was badly hurt. The rupee would trade at INR85.0 to a dollar. His ego and its prediction that India would do badly under Modi as the Prime Minister were more sacrosanct than India itself. Nor could he offer a fairy tale story for India with someone else as Prime Minister. That he could not has a message but I doubt if he gets it.

What is the message of this piece? Figuring that out is a task for 2014 and for all times to come.

[Mr. Tripathi’s piece has not ceased to fascinate me. He is trying to convey the following:

I cannot offer any one else than Modi as the Prime Minister of India even in my imagination. So, people will elect Modi as the Prime Minister of India. They will be making the wrong choice. I know better. I do not trust the institutions of India. They won’t or cannot hold back Modi. Modi will be a dictator. India will be ruined. I will be vindicated].


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