 Originally published in the March 2011 Socionomist |
On March 9, the UCLA Anderson Forecast issued a first-quarter report, “On the Mend,” which said the U.S. economy is “getting better.” The report points to recoveries in employment and real GDP and calls for “3% growth … for the duration of the forecast’s 2013 horizon.” A February 9 MSN article called last year’s 5% increase in cosmetic surgeries “one more indication that the economy is on the mend.” And, on January 17, an article in USA Today said, “The appetite for equities is going to continue to grow.”
Such forecasts are based on linear extrapolation. Robert Prechter called this habit “Predicting the Present” in his book The Wave Principle of Human Social Behavior:
Mainstream social and economic forecasting has forever been a practice of extrapolating present and recent conditions and trends into the future. More specifically, apparent predictions are simply (1) descriptions of present conditions (2) multiplied by an unconsciously calculated summation of multiple forward-weighted moving averages of the trends of those conditions.
Speaking before the World Futurist Society in Boston on July 10, 2010, Prechter pointed out that most people who try to predict look for “so-called cutting edge events, things that they think might start a trend. But every one of those events is simply an event. It doesn’t predict anything. That could be the first and only time it ever happens, like Nehru jackets.”
Economists’ and futurists’ reliance on linear extrapolation makes them “notoriously optimistic at tops and pessimistic at bottoms, producing highly inaccurate forecasts of coming events,” Prechter said in The Wave Principle of Human Social Behavior. And, in a world that not only trends but also turns, this approach is doomed to fail—sometimes, spectacularly.■
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Most economists, historians and sociologists
presume that events determine society’s mood. But socionomics hypothesizes
the opposite: that social mood regulates the character of social events. The
events of history—such as investment booms and busts, political events,
macroeconomic trends and even peace and war—are the products of a naturally
occurring pattern of social-mood fluctuation. Such events, therefore, are not
randomly distributed, as is commonly believed, but are in fact probabilistically
predictable. Socionomics also posits that the stock market is the best available
meter of a society’s aggregate mood, that news is irrelevant to social
mood, and that financial and economic decision-making are fundamentally different
in that financial decisions are motivated by the herding impulse while economic
choices are guided by supply and demand. For more information about socionomic
theory, see (1) the text, The
Wave Principle of Human Social Behavior © 1999, by Robert Prechter;
(2) the introductory documentary History's
Hidden Engine; (3) the video Toward
a New Science of Social Prediction, Prechter’s 2004 speech before
the London School of Economics in which he presents evidence to support his
socionomic hypothesis; and (4) the Socionomics Institute’s website, www.socionomics.net.
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The Socionomist enables you to see trend-shaping waves of social mood, as reflected by the stock market — and capitalize on them. The June issue looks at phases of social mood and features a “Research Roundup,” which highlights five academic studies that shine a light on important aspects of socionomic theory. Mood Riffs topics include “quiet luxury,” loneliness, the Writers Guild strike and efforts by countries to trade in currencies other than the U.S. dollar. Read the June issue when you become a Socionomics Premier Member.
