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  • History and Unexpected Shock

    Posted by Carl from Chicago on September 7th, 2015 (All posts by )

    One of the fallacies of studying history and interpreting historical events is that:

    1) you look at the course of events that occurred and assume that they mostly would follow a similar narrative with different variables
    2) you ignore what might have happened that is significantly out-of-the-box or the “black swans” that could have resulted in  radically different outcomes.

    I discussed this here with equity markets by country; while we talk about the “long term” and staying with stocks since they generally rise, we ignore that for most countries there have been “liquidation events” that wiped out all the players who remained in the markets (of their stockholdings, at least).

    For instance, in the course of WW2, there has been much discussion of whether or not the Germans would have won had they attempted a sea-landing of England.  The much more important train of thought, however, is what might have happened had Churchill not been the Prime Minister of England during those critical hours.  Many, many lesser men would have capitulated in that time of crisis.

    On the Russian front, in 1941, Russia likely came within a hair’s breadth of moral and system-wide collapse after their frontier armies were annihilated and the Germans began driving across the steppe.  The fact that they were able to sacrifice armies for time and keep some semblance of discipline is taken as a given, but likely if the world ran that as a true Monte Carlo simulation over and over again that outcome is rare.

    A third WW2 example is “what would have happened had the US Navy lost at Midway” which was what the odds said would have occurred.  It is true that in the end US material advantages would vastly outstrip Japan, but another issue is “if we didn’t have victories, would the US political system have produced an isolationist president who would have sued for peace?”  FDR was an ill man and could have conceivably died anytime from 1940 onward.  Even today, looking back, I am amazed that so many US servicemen were preparing to invade Japan at the end of the war, a task that would have led to virtually certain death or injury (for the lucky ones) for tens of thousands without some sort of riots or desertion given the immense casualties and deaths the US faced at Okinawa and Iwo Jima.  Today we lack the social cohesion to attempt anything so disruptive and likely to result in mass casualties.

    It is important to remember that historians and prognosticators are notoriously bad at predicting events – even on topics that they are intimately close to.  For example, few saw the collapse of the USSR in 1989 and the entire “Arab Spring” that began with a vendor self-immolating in Tunisia swept the world with surprise.  It isn’t that in hindsight many showed the “rot” of these decaying systems, but that they couldn’t predict the “triggers” that would set off the maelstrom.

    We also often see things through the wrong lens; while many talk of the civil war, battlefields, and re-enactors, likely two of the most important events are rarely discussed which are 1) England’s neutrality during the war at a time when it was a super-power 2) the election of 1864 where if events turned out differently Lincoln could have been replaced with someone more favorable to negotiations rather than fighting to the bitter end.

    One odd almost-event few talk about is the fact that Ditka did not run for an open senate seat in Illinois at a time when he had 100% name recognition and the field was wide open and he would have faced what seemed to be weak opposition; the course of history for the USA at least could have been significantly different.

    I subscribe to “Modern War” by Strategy and Tactics Press and they had a recent article titled “Red Dragon Falling” which described potential civil war scenarios within China.  While I don’t know how likely any of these scenarios are, China has been plunged into civil war many times within the last 2 centuries and even as recently as the 1960’s if you count the “cultural revolution” and possibly even the 1980’s if you count the Tiananmen Square massacre where tens of thousands died.  Note that China is one of the few places in the world where citizens have zero rights to vote and limited means of public expression; even in Russia and the Democratic Republic of Congo they have elections (even if they are mostly rigged).  While the majority of the world does not think of this as an event worth considering, in fact China is in a difficult situation of trying to run a dictatorship indefinitely that has eroding doctrinal support and faces many physical and existential challenges.

    If you read a blog such as “zero hedge” there are apocalyptical scenarios played out there every day, and while the financial system generally has trudged onward, there is a significant chance that someday an event will de-stabilize the system (like the 2008-9 crisis) and we will move off our moorings into uncharted waters.  It isn’t obvious that if 2008-9 replayed again in the USA that we would have ended up with such relatively benign outcomes; panic could have spread much further and there is a possibility that it could not have been contained.

    We are starting to see the collapse of countries that will not be put back together again in their current form, and the end of co-habitation of various communities of ethnicities and religions in the middle east (not that this was working very well in the first place).   We are seeing this to a large extent in the East in Ukraine and Russia as well.  This is also occurring (mostly out of the eyes of our media) in Africa today as well where the peaceful transition of power in Nigeria was a near-run event and even today that vast and important country is on the edge of a dangerous and possibly apocalyptic slide should the low prices of oil and other commodities be sustained.

    One “meta fact” to consider is that today there are over 7 billion individuals on the planet and some say that we will hit 9 billion by the middle of this century.  Our collective knowledge of history is often based on a narrow section of Western countries whose tactics, structure and methods will not apply in this future where they will make up a minuscule part of the total population (even if their military and economic capabilities are far beyond their population share).  If you want to study Chinese history, especially over the last 200 or so years, it will be one of upheaval, civil war, famine and extreme violence.  The history of Africa is all over the place as well and now it is being heavily influenced by their largest outside investor, China.

    In reality what we see as a stable system of countries on a map, each with unique colors and well defined borders, is often a soup of local “facts on the ground” that range from murky to unknown.  The current facts are poorly known, and the future’s trajectory even harder to determine.  Once organized, systemic violence is applied to the situation (see Ukraine, Syria, Iraq, Sudan, Yemen, etc…) then we will see an unwritten future and shocks.

    This does not mean that I am not hopeful; the peaceful transition of power in Nigeria was a great event, and the fact that Chinese tanks did not run over the “yellow umbrella” protestors in Hong Kong is another positive outcome that could have gone very differently.  It is just that we know little and are a bit too sure that we understand the key variables when in fact we may be mostly wrong.

    Cross posted at LITGM

     

    6 Responses to “History and Unexpected Shock”

    1. Mike K Says:

      Good post. Stratfor has been speculating about China for a while and the prosperity seems to be localized to a rim of provinces along the ocean. The interior has been described as an entirely different culture. Population density also follows prosperity and the very prosperous guangdong province seems to be an isolated example.

      India may be more prosperous in some aspects.

      Others have expressed doubts about the Chinese model especially about the migration of workers from the interior to cities. A map of China by an index of prosperity illustrates the problem. It’s all along the rim.

      The issue of what would have happened if Churchill were not PM in 1940 is well done in John Lukac’s book, Five Days in London: 1940

      It was a very near thing that he was not replaced by the appeaser Halifax. Very near thing.

      I still believe that most of what we see as our world is the result of 1914 and the Kaiser who, I believe, blew up the European world in a fit of pique.

    2. Grurray Says:

      “One odd almost-event few talk about is the fact that Ditka did not run for an open senate seat in Illinois at a time when he had 100% name recognition and the field was wide open and he would have faced what seemed to be weak opposition; the course of history for the USA at least could have been significantly different.”

      Jiminy Christmas, I was hoping to spend a nice relaxing Labor Day with barbecues, baseball, and some books, but nothing gets my blood pressure rising and pyloric valve wrenching like talk of that galactically stupid 2004 Senate race. At any other time in history the blackmailing, underhanded tricks, backroom backstabbing deals, and piglets slopping at the trough would have resulted in the same old (mostly) innocuous business as usual, but that one time it set the wheels turning on the biggest debacle in the history of our republic. God only knows what they had on ‘Da Coach’ to keep him out too. I’ll need some extra brats and sausage now.

    3. Michael Hiteshew Says:

      >>It isn’t that in hindsight many showed the “rot” of these decaying systems, but that they couldn’t predict the “triggers” that would set off the maelstrom.

      Good point. Richard Fernandez had a good essay a year or so ago on how the rot in a system can go on for a very long time and look deceptively healthy from the outside. Then some triggering event collapses the entire structure seemingly overnight.

      The current conditions in the USA worry me for that reason. The political class’s penchant for spending us ever deeper into debt, the corruption of Washington political class and the spinning up of ethnic hatred and class warfare for political gain are a toxic brew. Throw in interest groups and a political and educational bureaucracy increasingly at war with and destructive to free markets, energy production and manufacturing, and that’s a recipe for economic and social collapse. A nation cannot consume poison indefinitely.

    4. Joe Wooten Says:

      God only knows what they had on ‘Da Coach’ to keep him out too.

      I imagine he did not want the heart attack inducing stress that would have come from running that year. I cannot imagine they had anything on him that he would not have cheerfully acknowledged and ended his answer with “…and so what?”.

    5. Grurray Says:

      So true, Joe. Aside from some busted draft picks and not handing the ball off to Payton in the super bowl, he doesn’t need to answer for anything to anyone.

    6. Rich Rostrom Says:

      History is a mix of strong forces and random events. Some historical events were “overdetermined” by controlling circumstances; others could have been easily derailed by a minor accident.

      For example, geography pretty much dictated that eastern North America would be settled by English, French, and Dutch colonists, not Germans, Italians, or Scandinavians. But the specific locations of these colonies was largely a matter of chance.

      The personal qualities of individuals are determined by chance, yet can have great impact: the madness of Henry VI, the gender of Elizabeth I, the genius of Napoleon, and the charisma of Hitler were all unpredictable.

      Formalized political systems such as hereditary monarchy and elective democracy often have large all-or-nothing results from very narrow outcomes. An election may be decided by a handful of votes, but then the winner holds power for several years.