The biggest takeaway from history is that the characters change but their behaviors don’t. The technologies, trends, tragedies and winners – the events that take place – are always in flux and can be nearly impossible to predict. But the behaviors that drive people into action, influence their thoughts and guide their beliefs, are stable. They’re the same today as they were 100 years ago and will be 100 years from now.
Markets change, but greed and fear never do.
Industries change, but ambition and complacency don’t.
Laws change, but the tribal instincts of politics don’t.
My deepest forecasting belief is that you can better understand the future if you focus on the behaviors that never change instead of the events that might.
And those behaviors have a common denominator: They follow the path of least resistance of people trying to simplify a complex world into a few stories that make sense and make them feel good about themselves.
Simple stories, feel-good stories. Those are some of history’s most seductive beliefs, and they always will be.
A few that stick out:
1. An illusion that other people’s bad circumstances couldn’t also happen to you.
Most of history is slow progress amid constant bad news and occasional terrible news. A seductive story when hearing about tragedy is to believe this awful thing happened to this person, company, or nation, but it almost certainly couldn’t happen to me.
And you may be right about that. Your country may be more stable than the one that collapsed, your business may be stronger than the one that went bankrupt, and your health may be better than the person diagnosed with cancer.
The problem is that people don’t like to think in probabilities; it’s so much easier to think about risk as black or white, it will happen or it won’t.
So rather than thinking your business has a 10% chance of failure, it’s easier to think that what happened to Sears and Lehman Brothers could never happen to you. Before 2008 you didn’t think there’s a 5% chance of a banking collapse in America; you just looked at what had been happening in Latin America for decades and thought, “that can’t happen here.” Most of the world didn’t look at Wuhan China last February and think, “there’s a 25% chance that this is our future.” You thought, “I can’t even imagine my town being on lockdown.” Couldn’t even fathom it happening here. That was easier to understand and made you feel better.
When you go through life thinking low-probability events are zero-probability events, you’re bound to get stuck in an illusion that what happened to someone else couldn’t also happen to you.
That’s especially true when you add up the low odds of lots of unfortunate events. If next year there’s a 1% chance of a new disastrous pandemic, a 1% chance of a crippling depression, a 1% chance of a catastrophic flood, a 1% chance of political collapse, and on and on, then the odds that something bad will happen next year – or any year – are … pretty good. “History is just one damn thing after another” the saying goes.
A few years ago I interviewed Yale economist Robert Shiller. He talked about the possibility – not quite a forecast – that home prices could decline adjusted for inflation for a decade or longer.
I asked him why he thought that, or how it could happen. “Well, it happened before,” he said. Real home prices fell for most of the 20th century. “So of course it could happen again,” even if it seems crazy.
2. Imagining an unrealistic world where progress and success don’t demand a fee, and a belief that hassle, nonsense, disagreement and uncertainty are bugs rather than a cost of admission to getting ahead.
Jeff Bezos recently talked about the realities of loving your job:
If you can get your work life to where you enjoy half of it, that is amazing. Very few people ever achieve that.
Because the truth is, everything comes with overhead. That’s reality. Everything comes with pieces that you don’t like.
You can be a Supreme Court Justice and there’s still going to be pieces of your job you don’t like. You can be a university professor and you still have to go to committee meetings. Every job comes with pieces you don’t like.
And we need to say: That’s part of it.
That’s part of it.
It’s part of everything. His advice applies to so much more than careers.
A simple rule that’s obvious but easy to ignore is that nothing worth pursuing is free. How could it be otherwise? Everything has a price, and the price is usually proportionate to the potential rewards.
But the price is rarely on a price tag. You don’t pay it with cash. Most things worth pursuing charge their fee in the form of stress, doubt, uncertainty, dealing with quirky people, bureaucracy, other peoples’ conflicting incentives, hassle, nonsense, and general bullshit. That’s the overhead cost of getting ahead.
A lot of times that price is worth paying. But you have to realize it’s a price that must be paid. There are few coupons and sales are rare.
A seductive belief throughout history is people expecting an idealized world where you demand perfection and assume that having little tolerance for error, variability, and disagreement is an asset.
It’s a simple story, and it feels good. I wish it were true. But it’s so at odds with reality that it leads to people never achieving what they want because they’re unwilling to pay the required price, and over-idolizing those whose success was harder than it looks and not as fun as it seems.
3. An assumption that your view of the world is the view of the world, and a belief that what you’ve seen and experienced are the sights and experiences that explain how the world works.
Harry Truman once said:
The next generation never learns anything from the previous one until it’s brought home with a hammer … I’ve wondered why the next generation can’t profit from the generation before, but they never do until they get knocked in the head by experience.
Here’s at least one reason why: No lesson is more persuasive than the one you’ve personally experienced.
You can try to be empathetic and open-minded to other people’s lives, but when you’re trying to figure out how the world works nothing makes more sense than the unique circumstances of what you’ve lived through firsthand.
And the idea that you’ve never seen or experienced 99.999% of what’s happened in the world is hard to swallow because it’s intimidating to admit how little you know.
A more comforting story is convincing yourself that what you’ve experienced is the story of how the world works. This is how your career went, so that’s how economics works. These policies benefited you, so this is how politics works. You think what you’ve seen is a reflection of how the world works. What could be more seductive? Yet given how oblivious everyone is to the majority of experiences, what could be more wrong?
So everyone goes through life a little blind to the lessons that have already been learned by other people.
And it goes well beyond generations: There are massive experience gaps between different nations, socioeconomic classes, races, industries, religions, educations, on and on.
The person who grew up in poverty thinks about risk and reward in ways the child of a wealthy banker cannot fathom if he tried.
The person who grew up when inflation was high is scared in a way the person who grew up with stable prices isn’t.
The stockbroker who lost everything during the Great Depression experienced something the tech worker basking in the glory of the late 1990s can’t imagine.
The Australian who went 30 years without a recession has experienced something no American ever has.
It leads to all kinds of issues.
One is that we’re constantly surprised by events that have been happening forever.
Another is that it’s hard to distinguish people who have experienced something you haven’t from people who aren’t smart enough to understand your experiences.
A third is that topics like risk, greed, and fear are not the kinds of things that we can learn about and master as a society, like we did with, say, agriculture. As Michael Batnick says, “some lessons have to be experienced before they can be understood.” Every generation has to learn on its own, over and over.
The question, “Why don’t you agree with me?” can have infinite answers.
But usually a better question is, “What have you experienced that I haven’t that would make you believe what you do? And would I think about the world like you do if I experienced what you have?”
4. An assumption that history is a guide to the future and that things will continue working as they did in the past.
A $45 million dam in Colorado designed to prevent flooding turned out to not really be needed because the river it blocked slowed to a trickle. In Rotterdam, the opposite: A dam needs to be replaced a quarter-century sooner than once estimated because it’s under unprecedented stress.
Journalist Shayla Love explained the common denominator:
Stationarity is the idea that, statistically, the past can help you predict and plan for the future—that the variations in climate, water flow, temperature, and storm severity have remained and will remain stationary, or constant.
Nearly all the infrastructure decisions with which we live have been made with the assumption of stationarity. Engineers make choices about stormwater drainage pipes based on past data of inches of rain. Bridge engineers design foundations that can withstand a certain intensity of water flow based on the severity a certain location has experienced in the past. Reservoirs are designed to hold water based on historical information about water flow, and the historical water needs of a community.
A seductive belief that exists in almost every field is that things will keep operating like they always have. It’s an almost necessary belief in a world where you have to base a prediction off something.
But as Stanford professor Scott Sagan says, “things that have never happened before happen all the time.”
All the time.
In fact in most fields – especially business and investing – the most important events that changed everything and determined the majority of future outcomes are things that had never happened until they did.
The most important economic events of the last century are probably the Great Depression, World War II, the 40-year collapse in interest rates, and globalization. And while each had analogous ancestors, anyone predicting what those events eventually did to the world could be brushed aside by those who pointed out that, say, negative interest rates had never happened before. A nationwide housing bubble and bust had never happened before. A weapon like the nuclear bomb that could deter future wars had never happened before.
Then all those things happened. And they totally changed the world.
All history is the study of what’s changed, but it’s often used as a guide to the future. The irony is overlooked because the idea that if we gather enough data and read enough books we’ll acquire a map of the future is so seductive – it’s so simple, and makes you feel great.
That will never change.