The jealousy of the gods

Writing late last year Niall Ferguson argued that complex empires don't gradually decline over centuries. They fall off a cliff.  One moment they're sailing along; fat, dumb and happy. And the next moment, they're gone. He cites the fate of ancient empires and adds that modern ones meet the same end.

A more recent and familiar example of precipitous decline is, of course, the collapse of the Soviet Union. And, if you still doubt that collapse comes suddenly, just think of how the postcolonial dictatorships of North Africa and the Middle East imploded this year. Twelve months ago, Messrs. Ben Ali, Mubarak, and Gaddafi seemed secure in their gaudy palaces. Here yesterday, gone today.

What all these collapsed powers have in common is that the complex social systems that underpinned them suddenly ceased to function. One minute rulers had legitimacy in the eyes of their people; the next they didn’t.

This process is a familiar one to students of financial markets. Even as I write, it is far from clear that the European Monetary Union can be salvaged from the dramatic collapse of confidence in the fiscal policies of its peripheral member states. In the realm of power, as in the domain of the bond vigilantes, you’re fine until you’re not fine—and when you’re not fine, you’re suddenly in a terrifying death spiral.

What Ferguson left out of his analysis was that the ruling elites of these doomed empires were the last to know.  At first this seems startling since these elites are selected from the "best and the brightest" and consider themselves well-informed.

Yet the history is clear. Take for example, the collapse of the Soviet Union. As Foreign Policy noted in a 2009 article, "the fall of the Berlin Wall was bad news for sovietologists. Thousands of spies, military officers, diplomats, professors, journalists and assorted experts made a living studying the Soviet Union. None predicted its collapse."

They never saw it coming.

The same can be said of the ongoing collapse of the European Union. But Nigel Farage in the video provides an additional clue as to why leadership cannot see their own collapse coming. They simply cannot adapt. They are trapped inside what they imagine to be a winning formula -- the formula that brought them to success -- and they double-down in the face of failure until they are totally ruined.

Here Farage describes how the EU leadership are shoving themselves into a sack. They cannot accept the possibility that their methods are themselves the problem; that is unthinkable. So all of their responses are merely larger versions of the known 'winning formula'.

In America,  Nassim Taleb was more scathing. The elites, he argued, were not smart at all. They only thought they were smart but in the relevant domain they were really no better at understanding the problem than cab drivers. Thus the economic crisis that began in 2008 could neither be foreseen nor managed because no one in the elite was equipped to see things for what they were.

CHARLIE ROSE: Now, why are you so on Bernanke’s case?

NASSIM NICHOLAS TALEB: Not him. It’s just this class of people who are into economics give and have this illusion, provide us with all these analytics, the illusion of understanding the world. And that I find it very dangerous, because the economic establishment -- and I showed them my book -- as a class, all right, as a class, has been extremely incompetent in history. It is like medieval medicine. Medieval doctors killed more patients than they saved. And the same thing happened -- they can’t predict better than cab drivers. And they increase the risk.

Civilizations go over the cliff not only because some new condition arises but because of a second factor: the leadership is locked into institutional solutions beyond which they cannot intellectually venture. They are hogtied by The Base into adopting acceptable solutions.

It is the combination of a novel challenge and fixity of response that proves so deadly. Don Surber notes that President Obama's supporters hate one chart above all -- the one of their own making -- because they cannot find a way to simultaneously claim that it is both a guide to the future and a map of their failed recent past.

Surber writes:

It’s the chart that makes liberals cry.

They say it is unfair.

They say it proves nothing.

They say it is racist, sexist and taken out of context.

But mostly, they cry because they made the chart up and the chart is being used against them. Conservatives are making them eat the chart of “Unemployment Rate With and Without the Recovery Plan,” which Barack Obama used to sell the $787 billion stimulus — the largest gamble ever made in the history of the world.

This was their chart.

The worst thing about the chart is that it represents their plan for the future.  The map of failure is simultaneously their hope. More tax and spend.  More deficit spending.  That is the range of composition they can play, and even if it is dissonant that is all the sheet music they have. While some have described the willful repetition of failure as insanity, the administration's supporters will claim that the only defect with the past stimulus was that it wasn't big enough.  Joe Wiesenthal argues that the President will be right in the end if he pours enough money into the same rathole.

So: Have The White House's Keynesian stimulus ideas been debunked?

No.

Here's what you need to realize. The original chart above comes from a document (.pdf) that was put out by White House economic advisors Christina Romer and Jared Bernstein on January 10, 2009.

It's important to recall that his was right in the throes of the recession. At the time, things were weakening much faster than anyone could possibly realize in real time.

And this is crucial.

The EU is doing exactly the same thing. Each time a bailout fails, it comes back with a bigger one. At last report, they were rattling the tin cup as far away as China, India and Brazil. Their idea is presumably that when the bailout gets big enough then the doubters will be intimidated and leave the elites the masters of the field.

One of the worst catastrophes in modern military history was the Fall of France in 1940. Even Churchill could not believe how an army of millions equipped with better armor than the Nazis, whose hardihood had been proven in World War 1 could collapse so quickly. The explanation of the collapse lay not only in the novelty of  blitzkrieg, but in the inability of the French high command to do anything more than funnel more and more divisions into the encirclement being prepared by the Germans.

The Dyle Plan played into the hand of the Germans who in fact executed their main attack (Manstein Plan) through the Ardennes on the assumption that the Allies would advance into central Belgium. The British Expeditionary Force and the French First and Seventh Armies were surrounded and would have been totally annihilated if it had not been for an impromptu evacuation from Dunkirk. The Dyle Plan was a fundamental flaw in the Allied strategy and one of the decisive factors contributing to an Allied defeat in the Battle of France. According to British historian Julian Jackson, the Fall of France can be greatly attributed to the poor strategic planning of the French High Command.

The more General Gamelin failed, the more he repeated his mistakes. And he basically repeated this formula until the Third Reich marched into Paris. This is known as reinforcing failure. And this is precisely what the leadership of collapsing empires do.

Therefore it is little wonder that the solution to the growing economic problems in the West is more public sector unions, more tax and spend, more "sharing". The tale of past failure is the roadmap to the future. But what else do elites know? And thus limited, they can see no further than their paradigm. At a time when unemployment is at unprecedented levels the key preoccupations of the media are LGBT rights in Africa, Rush Limbaugh's remarks and Kony's Lord's Resistance Army. It is not a limitation of resources. It is a limitation of cognition.

It is said that "whom the gods wish to destroy, they first make mad". In the case of empires this madness takes peculiar forms: not raving lunacy of a man who thinks he is Napoleon but the invariant response of an elite faced with a problem they do not understand.

The curse devolves from their own success. Herodotus understood the danger that specialization forced upon an elite. Easy victories, he argued, bring with them a hidden peril called the "jealousy of the gods". It is a condition that can never be escaped until those at the top could throw it all away and begin wholly from scratch. Herodotus wrote:

Yet I do not like your great and constant good fortune because I know how jealous god is. I wish both for myself and those whom I care about a measure of success along with some failure and a life in which good fortune alternates with misfortune, rather than continuing uninterrupted. For I have never heard of anyone who was so fortunate all the time, who did not end badly—as a matter of fact, in utter ruin. So I ask you to do what I suggest in the face of your perpetual and excessive prosperity. Decide what you value as most precious, what in your heart you would most deeply regret losing. Then throw it away, so that it may never be seen or possessed by anyone. After you have done this, if your good fortune goes on without any suffering, continue to find a cure in the way I advise.

But perhaps it is too much to expect Occupy Wall Street to read Herodotus in preference to Doonesbury. If Doonesbury says double down, they will and so repeat their mistakes and never be the wiser. Maybe in the end they will ask Bill Maher to help them out. He at least is one of them.


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