August 06, 2009

How Can We Get to See What's Coming Round the Corner?

Writing about web page http://www.wehc2009.org/programme.asp?find=world+in+2030

At a meeting I attended earlier this week, some of the world's best economic historians discussed how the world might look in 2030, based on their knowledge of the long-run trends at work over the last couple of centuries (or, in the case of China, the last couple of millennia). People talked about trends, models, and forecasts, using a lot of numbers and graphs. The picture was generally optimistic, in a moderate sort of way.

One speaker worried about the small number of big things that, although they happen only rarely, might completely derail our visions of the future: things like deadly pandemics, Great Depressions, and global wars. Anther speaker worried about the rise of nationalism, how far it might go, and whether it could then have unpredictable effects.

This made me think about people that haven't had the benefits of a training in economics -- most historians, for example, but of course not only them. It occurred to me that such people often think about the future in a completely diffferent way, a way that is much more intuitive than economists' trends and models. They think about the future by telling stories taken from the past. (This is not a completely original thought. I began to think about it after reading "The Political Economy of Hatred," by Ed Glaeser, in 2005 in The Quarterly Journal of Economics 120:1, and more recently Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism, by George A. Akerlof and Robert J. Shiller, published by Princeton University Press in 2008).

How do people use stories from the past to think about the future? First, they think about the conditions obtaining in the world today. Then, they scan the past for stories that began with initial conditions somewhat like these. They ask: "What happened next?" Then, they let the story unfold. From the story, they work out what might be about to happen in our own future. In this way, they try to see what's coming round the corner but still hidden from direct view.

Here are two examples.

  • Today, we are in the early stages of a Great Recession that was preceded by a financial crisis. That's somewhat like the world economy in around 1930 or 1931. What happened in the Great Depression was a global contraction followed by the breakup of world markets, the rise of nationalism, the attempt of Germany, Italy, and Japan to carve out new empires, and World War II. Is that what might come next?
  • Russia today is a great power that began the transition from totalitarianism to democracy -- and got stuck half way. The Russian political elite feels encircled by an old enemy, NATO, in the West, and a new rival, China, rising rapidly in the East. With a shrinking population, Moscow may well feel that time is running out. That's somewhat like Germany in around 1912. Germany was stalled half way from Prussian absolutism to parliamentary democracy. Germany was a rising power, but with the sense of being encircled by old enemies, Britain and France, in the West, and new rivals, Russia and Japan, that were rising even faster in the East. What happened next in that case was that the German political elite took an immense gamble. They launched World War I, not because they were confident of winning, but because they feared that time was running out. They feared the consequences of doing nothing -- the certain continuation (as they saw it) of peaceful decline -- more than the combined risks of victory and defeat if they started a military adventure. Is that what might come next?

Story-telling like this has some remarkable features. First, it is indeed a way of thinking about the possibility of rare and unpredictable events. As such it is immensely powerful. Its intuitive appeal is much greater than models, charts, and numbers. It speaks the language of nations and politics: shared experiences, common destinies, collective rights and wrongs. It is easily voiced by leaders and heard by followers untrained in statistical thinking about trends and standard errors. As a result, while politicians may turn to economists for technical advice, they get historians to help write their speeches -- Arthur Schlesinger Jr (John F. Kennedy), Richard Pipes (Ronald Reagan), and Norman Stone (Margaret Thatcher).

Second, story-telling is deliberately selective. When we scan history for stories, we look by definition for sequences of events that have a beginning, a middle, and an end. In the middle, something happens that is out of the ordinary, dramatic, and unexpected. Invariably, we rule out all those past historical circumstances that also somewhat resembled the present day, but after which there were no surprises and nothing much happened.

Third, story-telling typically sounds an alarm. In history, dramatic events are rarely good news. The good news in history has generally been made up of the slow, steady progress of emancipation, literacy, and prosperity. Such good news is easily illustrated by statistics and trends, but does not make good stories. It is the bad news of crises and wars that makes good stories.

Fourth, exactly because story-telling is alarmist, an entirely legitimate purpose of stories may sometimes be to sound the alarm about the risks we face and so avert their realization. Putting it in its best light, we sound the alarm of another Great Depression so that governments will take the actions necessary to save us from having to relive the experience. We warn of the danger of a new war so that governments will change their policies to a peaceful track. One result is that it is generally very difficult if not impossible to test the efficacy of story tellng as a form of prediction.

Fifth, some stories can be self-fulfilling. There is a particular kind of collective story, for example, that communal identity politicians like to tell (Glaeser wrote about this in "The Political Economy of Hatred"). These are stories of past hate crimes allegedly committed by some other ethnic or religious group against their own group: Black against White, Germans against Jews, Jews against Palestinians, Protestants against Catholics, Sunni against Shia -- and, in all cases, vice versa. Such stories can be extrapolated into predictions of future hate crimes yet to be committed, and then into justifications for hateful and violent action to preempt the future crimes.

Related to all this is the problem that we control the initial conditions of the stories we select only very imperfectly. The world economy today is only somewhat like the world economy of 1930; in many ways it is quite different -- and the differences may well turn out to be crucial. In the same way, Russia today is only somewhat like Germany in 1912. And so on. Thus, the stories we tell have the capacity to be deeply misleading about the true underlying risks in the world today.

If the risk of war or depression illustrated in the story does not materialize, this could be because telling the story stimulated effective action to avert the risk, or because the risk, although real, happened not to materialize this time (i.e. we were lucky), or because the risk was nonexistent in the first place; we may have no idea which is the case. If the risk of community violence does materialize, we don't know whether the underlying story merely predicted it -- or actually precipitated it.

In summary, such stories are powerful. They have great potential to illuminate the risks we face, but this potential is also dangerous; it is a power to accentuate risks, as well as to illuminate them.

I draw two simple conclusions from this. One is that economists and economic historians interested in addressing the wider public should think carefully about the stories that can put our messages across. The other is that we should pay close attention to the stories that others narrate in public about what has happened in economic history: we should look out for these stories, identify them, test them carefully against the evidence that we have, and then report the results to the public ourselves.


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I am a professor in the Department of Economics at the University of Warwick. I am also a research associate of Warwick’s Centre on Competitive Advantage in the Global Economy, and of the Centre for Russian, European, and Eurasian Studies at the University of Birmingham. My research is on Russian and international economic history; I am interested in economic aspects of bureaucracy, dictatorship, defence, and warfare. My most recent book is One Day We Will Live Without Fear: Everyday Lives Under the Soviet Police State (Hoover Institution Press, 2016).



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