Predictably Surprised in 2007—and 2008

Michael Watkins gives his first annual Predictably Surprised Awards. Among the winners: General David Patraeus and Alan Greenspan

Posted on The Leading Edge: December 27, 2007 9:13 PM

In 2004, my colleague Max Bazerman and I published Predictable Surprises: The Disasters You Should Have Seen Coming and How to Prevent Them. We defined "predictable surprises" as problems that

(1) at least some people are aware of;

(2) are getting worse over time; and

(3) eventually are likely to explode into a crisis, but are not prioritized by key decision-makers or have not elicited an effective response mobilized in enough time to prevent severe damage.

I've decided to end 2007 and usher in the new year with the first annual Predictably Surprised Awards, granted to the people who either should have seen it coming but didn't (call them the "Predictably Surprised") or saw it coming and demonstrated the sort of leadership we need more of (call them the "Courageous Cassandras"). I'm also going to go out on a limb with a few predictions of my own for 2008.

My first Predictably Surprised Award for 2007 goes to former Secretary of Defense Donald Rumsfeld for failing to figure out for more then three years that the best way to fight an insurgency in Iraq was with counter-insurgency tactics. As a recent front-page article in USA Today charts in depressing detail, Rumsfeld and his advisers were being told and told again that the administration's clear-and-hold, train-the-Iraqis-and-get-out strategy wasn't working. But, and this is a hallmark of the predictably surprised, they tried to define reality to be consistent with their beliefs and hopes, rather than the other way around.

The companion Courageous Cassadra Award goes to General David Petraeus, who stuck with his guns (if you will pardon the pun) to make counterinsurgency work, first in Anbar Province and now increasingly in Iraq as a whole.

My second Predictably Surprised Award is granted to Alan Greenspan for ignoring repeated warnings about the risk of sub-prime borrowing to the financial system. As The New York Times has documented in unequivocal terms, Greenspan was repeated warned by serious people that sub-prime lending posed a serious threat to the US financial system, and repeated did nothing about it. Here, it seems that blinkered belief in Ayn Randian ideology (ideological blindness is another common cause) may have played a role in tarnishing the Maestro's legacy.

The companion Courageous Cassandra award is shared between Edward M. Gramlich, a recently-deceased Fed Governor who began sounding the alarm about lending practices more than seven years ago, and Sheila Blair, a senior Treasury official, who tried to push subprime lenders to adopt a code of "best practices" for their risky lending.

My third and final Predictably Surprised Award goes to George Bush for being one of the few people left on the planet who doesn't think global warming is an existential problem. Lurching from arguing that there is no problem (denial is not just a river in Egypt) to asserting that nothing could be done to prevent it, Bush continues to fight a rear-guard delaying action when every serious climate scientist says we stand on the brink and there is still time to avoid disaster—at a reasonable cost.

The companion Courageous Cassandra Award goes to (sorry, Al) members of the Intergovernmental Panel on Climate Change, which has done more than any individual or group to raise our collective awareness of the peril we face if we don't take action, and soon to reduce greenhouse gas emissions.

And what about 2008, what predictable surprises lie lurking out there for us? My favorite candidates are repetitions of predictable surprises have already happened, call them predictable, predictable surprises:

• Another major Gulf-coast hurricane disaster, because little of what we have learned from Hurricane Katrina has been acted upon;

• Another financial systems crisis, because we let pernicious conflicts of interest take root in our financial system (my favorite current example is investment banks competing with their customers through proprietary trading and investing) and because we still have an allergy to appropriate government regulation;

• Another failure to deal adequately with global terrorism because we can't act as a honest broker in pushing the Israelis and the Palestinians to reach an equitable agreement (Annapolis will fail) and we won't devote the necessary resources to winning the war in Afghanistan; and

• Another failure for the U.S. to take a leadership role in dealing with the challenges of global warning.

Lots of other things will happen in 2008, predictable and not-so-predictable. But virtually all of it will be noise. It will be our collective willingness to step up or not step up to these sorts of big challenges that will be what matters.

Finally, lest I come across as a complete pessimist, I am cautiously optimistic that we will elect some leaders in 2008 that are actually willing to step up and do something about the gathering storm. If not, well, it's really too awful to contemplate.

Before it's here, it's on the Bloomberg Terminal.