I’ve been trying to find some time to put down my thoughts about Oxfam’s new campaign (as well as post the contest results, review two books I was meant to review a long time ago, etc). In the meantime, I’m going to piggyback on Marc Bellemare’s thoughts on Oxfam’s claim that food prices will double by 2030:
This means that you can be reasonably confident in a forecast if it’s two or three time periods (e.g., months for monthly data, years for annual data) in the future. For anything beyond five time periods, however, you are in the dark. In other words, the further into the future you try to forecast, the likelier you are to be wrong.
If Oxfam has been using the same monthly food data I have been using — annual data would mask a considerable amount of heterogeneity; in 2010 alone, food prices have increased by 23 percent — they are forecasting food prices about 228 months into the future. Even using annual data, Oxfam forecasting food prices in 19 years makes for what I would charitably call a very heroic forecast. There are about a dozen more reasons why I think Oxfam’s forecast is wrong, which I might get into if there is a demand for it.
But if you truly believe food prices will have doubled by 2030, there’s a derivative contract I might like to sell you…
For more reasons why these predictions might be dubious see a post I wrote a post a while ago on the unreliability of big reports.
Bellemare’s last point is the most important though. If Oxfam is convinced of this result, why not put some money down on it? The benefits would be obvious: Oxfam will have more money to help the poor with, who would then be facing extremely high prices.
Of course, while Oxfam may believe this prediction now, they are trying to change behaviour so it doesn’t come true – this means that the claims will be incredibly difficult to (dis)prove. If food prices happen to double in 20 years, Oxfam will say “Look! We told you so.” If they don’t, they will say “Look at the disaster we averted!” Either way, the winning narrative will be constructed ex-post.