FutureSource

Last week the International Monetary Fund (IMF) and the World Bank held their spring meetings in Washington, DC. Despite worries of rising geopolitical threats, populist views on trade protectionism, and pressures of increased migration to Europe, both organizations have released generally optimistic forecasts of global economic growth for 2017.1

I decided to examine how the IMF and World Bank produces these forecasts. Since the IMF is one of the only entities in Washington that is required to monitor the health of the global financial system, one assumes that there is an actual or virtual “financial war-room” that provides early warning about the next financial crisis or bubble. Due to the IMF’s and the World Bank’s unique responsibilities, it stands to reason that twenty-first century software and forecasting tools are used by their employees on a regular basis.

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Zurich Geopolitical Email Banner

Geopolitical volatility is the new normal and is not going away anytime soon.

While the news features the rise of protectionism everyday, an energy crisis due to a conflict in the Middle East or the spread of water and food insecurity, could equally disrupt the world. Should any of these situations deteriorate further, the impacts would be earth shattering for how the world governs and does business.

A new Atlantic Council study, released today, looks at the implications of these global risks on global gross domestic product (GDP), extreme poverty, middle-class growth, and country instability. This report tests the proposition that global risks are increasing faster than global growth.

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On Monday, April 24, the Atlantic Council, in partnership with the University of Denver's Pardee Center for International Futures and Zurich Insurance, released a new quantitative study: "Our World Transformed: Geopolitical Shocks and Risks".

Here is a visual look at the different scenarios presented in the report and their implications for global gross domestic product, extreme poverty, the middle class, and country instability.

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Madison, Wisconsin, is best known for two things: it is the state capital and it is home to the flagship University of Wisconsin (UW) campus.1 Unfortunately, it is not as well known for its tech hub dynamism. The city has a small but vibrant and growing community of tech startups, a well-educated population (including a high concentration of people with backgrounds in science and engineering), and a deserved reputation as a beautiful place to live.

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Like Madison, Austin is a state capital and home to a major public university, the University of Texas at Austin (UT Austin). Unlike Madison, Austin is a large city (two million people in the metro area) with a diverse population and economy to match.1 But beyond UT Austin and the state capital, Austin is famous for several other reasons. Its culture has become the stuff of legend, and is at the core of Austin’s reputation as a place that mixes the offbeat with the artistic to produce a unique urban vibe.2 Finally, Austin is one of America’s fastest-growing tech hubs.

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There is a remarkable story in how a 1960s hippie haven evolved into perhaps the densest (per capita) startup community in the United States—and with no small amount of serendipity. A modest-size town of one hundred thousand, Boulder—laced with cozy coffee shops and seemingly endless craft beers—feels like a cross between the laid-back atmosphere in Berkeley and the high energy of Palo Alto in the 1980s. An attractive outdoor lifestyle, a concentration of highly educated STEM graduates in tech-related industries, a “pay-it-forward” culture of inclusiveness, and an accumulation of entrepreneurs and seed venture capitalists are all elements that have catalyzed Boulder’s status as a startup hub.

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California’s Bay Area, a region that stretches northward from Silicon Valley (San Jose, Palo Alto, and environs) to San Francisco and Oakland, is the world’s premier technology hub. By almost every imaginable metric, the Bay Area is ahead of every other hub in the world, often by a large margin. The region, Bay Area interlocutors told us, “is its own center of gravity” with “an ecosystem to dream about.” There are few reasons to be concerned about the region’s staying power in the foreseeable future, and indeed there is no reason to believe that it will fall from first place in the near term. Yet, over the longer run, the Bay Area will face stiffer headwinds, some of its own making.

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Austin, the capital of Texas, was the third stop on the Strategic Foresight Initiative’s (SFI) research ‘road’ trip examining the future of American technological leadership, as part of a collaborative project with Qualcomm. Throughout 2016, SFI visited cities around the United States that are at the forefront of technology-based innovation that together fuel the engine of America’s growth in tech innovation. The other cities were Madison, WisconsinBoulder, Colorado; and the Bay Area in California. Austin was chosen because it has become one of the nation’s most prominent tech hubs. Austin enjoys its reputation thanks to its unique local culture, epitomized by the famous slogan ‘Keep Austin Weird’, the presence of one of the largest research universities in the country in the University of Texas at Austin (UT-Austin), and a history of technology startups going back to the founding of Dell in 1984.

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Two plus two equals four. Math has a finality to it, a precision that yields a comfortable black and white. But economics at the state level is not purely math. Macroeconomics is the science that perfectly foresees the future of human activity … after the future has taken place. That is, it is a science that flawlessly predicts history. The reason why it does not portend well is because this is a history that deals with human behavior, probability, irrationality, diplomacy, competition, and chance. The problem lies also in our models. Sometimes variables and trends follow a linear pattern, suckering us into a false sense of comfort and perceived control. When this happens, we blind ourselves to presentism or normalcy bias. But sometimes variables follow a non-linear pattern by plateauing, geometrically increasing or decreasing, oscillating, or ending up like Nassim Taleb’s proverbial “Thanksgiving turkey” (at first a nice and predictable growth, but then a complete surprise).

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The San Francisco Bay Area was the final stop of the Strategic Foresight Initiative’s (SFI) innovation road trip, part of its Future of American Technological Leadership project. Together with Qualcomm, SFI seeks to examine the bases of American strength in technological innovation. After visiting Madison, Wisconsin, Boulder, Colorado, and Austin, Texas, SFI’s visit to the Bay Area featured two roundtables with local government officials, business entrepreneurs, tech leaders, university faculty, laboratory scientists, and venture capitalists to learn more about the region. Over the course of two days, SFI staff further met with leaders from a variety of fields to discuss trends in federal funding, the unique role of culture, the importance of increasing diversity, and how to build a workforce for the twenty-first century.

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