Unknowns exceed knowns even in the best of times.
Today, that’s increased exponentially.
No one can expect their ability to predict the next year to be any better than their ability to predict the last year. The speed of change anchors the accuracy of predictions, so the year ahead becomes a blur when you don’t know what new policies might be enacted in the hours ahead.
The best thing to do in these situations is not to constantly update your forecasts with new information as it comes in. You can’t keep up with that. Instead, focus on the few things we know with high confidence that will keep being true regardless of what happens.
Here are two.
1. Necessity is the mother of invention, so our willingness to solve problems is about to surge.
Capitalism works because profit is an incentive to improve. When the incentive becomes survival – literal or financial – that force goes into overdrive.
“The excess energy released from overreaction to setbacks is what innovates!” Nassim Taleb writes.
Take the Great Depression. Economist Alexander Field writes that “the years 1929–1941 were, in the aggregate, the most technologically progressive of any comparable period in U.S. economic history.” Productivity growth was twice as fast in the 1930s as it was in the decade prior.
The 1920s were the era of leisure because people could afford to relax. The 1930s were the era of frantic problem solving because people had no other choice.
The Great Depression brought unimaginable financial pain. It also brought us supermarkets, microwaves, sunscreen, jets, rockets, electron microscopes, magnetic recording, nylon, photocopying, teflon, helicopters, color TV, plexiglass, commercial aviation, most forms of plastic, synthetic rubber, laundromats, and countless other discoveries.
Same for World War II, which is responsible for both the most risk and the most rapid invention of any six-year period in history. The war began with troops on horseback. It ended by splitting an atom in half.
Writing in 1952, Historian Frederick Lewis Allen describes the burst of scientific progress that came during the war:
What the government was constantly saying during the war was, in effect: “Is this discovery or that one of any possible war value? If so, then develop it and put it to use, and damn the expense!”
The war gave rise to everything from penicillin to radar to nuclear power. All of those ideas had been largely discovered, at least on paper, before the war. But the life-or-death urgency of the situation sparked rapid refinement and deployment, in some cases generating the kind of technology advancement you might expect to occur in a generation into literally a few months.
The most important innovations are born from panic-induced necessity more than cozy visions. That’s been true for a long time, and I can say with high confidence that it’s true today.
2. Worry will exceed actual harm, which is both tragic and in a way comforting.
More people will worry about getting seriously ill than will become seriously ill.
More people will worry about being laid off than will be laid off.
More businesses will worry about going out of business than will go out of business.
It’s always like that.
Upheaval usually begins with complacency and eventually turns into overreaction. The two are the opposite sides of the same coin: It’s easier to assume something will happen than to calmly calculate the odds that it might happen. It’s also easy to miscalculate the odds when the consequences are either extremely good or extremely bad.
On the way up the rewards (markets will keep going up) are fun to dream about, so it’s comforting to assume they’ll definitely happen. The same thing happens in the other direction – the stakes are so high (Will people I know die? Am I going to lose my job?) that you might just assume bad stuff will happen and start preparing.
Worry exceeding actual harm is tragic because it creates more suffering than will be necessary in hindsight.
It’s also comforting in a way because we know, with high confidence, that we will get to a point when the average person looks around and says, “My God, I can’t believe how bad this is,” and a year later they’ll look back and think, “I shouldn’t have believed it, because it never got that bad.”
Maybe we’re at that point now, maybe it’ll take longer. But in hindsight we’ll realize we hit a point where pessimism went too far.
Corona Panic (Part II)
We’ll Get Through This