History as surprise

Most of us have probably seen a version of the meme with then head of IBM saying “there is probably a world market for five computers.” Setting aside the fact that there probably was only a market for five computers in 1943, the meme implies the wrong message about history.

On the surface, the quote is funny because of how spectacularly wrong Watson was. To say his aim was off implies he was pointing the right direction, which he clearly was not. He did not miscount the number of computers, he failed to realise what it was computers were and what they would do to society.

His mistake is funny is because the correct answer seems so obvious to us. The power and potential of computing is writ large in the world and our daily lives are a living, constantly rewritten, testament to it. The path of history seems so obvious in retrospect, so filled with suggestive hints and clear turning points, that the kind of confidence (and ignorance) Watson’s quote implies is comical. Looking back, the potential of machines seemed already visible in electro-mechanical devices like the bombe which helped break the German Enigma code in the Second World War.

Seeing history this way eliminates one of its most important elements: surprise. History frequently came as a surprise to those that lived it, and it seems unlikely to change anytime soon (unless Tetlock has his way)

The tendency for history to seem inevitable, the present to feel natural, and the future to look obvious is probably the unavoidable consequence of how history is taught, and our subjective lived experience, which leaves us with the sneaking suspicion we are unique, or at the very least more real.

With that in mind, I wanted to share a wonderful passage from Hobsbawn’s Age of Capital, where he discusses the development of mass-manufacturing techniques, which occurred first in the US:

They worried intelligent Europeans, who already noted in the 1860s the technological superiority of the United States in mass production, but not yet the ‘practical men’ who merely thought that the Americans would not have to bother to invent machines to produce inferior articles, if they had as ready a supply of skilled and versatile craftsmen as the Europeans. After all, did not a French official as later as the early 1900s claim that, while France might not be able to keep up with other countries in mass-production industry, it could more than hold its own in the industry where ingenuity and craft skill were decisive: the manufacture of automobiles.

Henry Ford’s famous automobile assembly line would begin at Highland Park in 1908.

A dose of perspective

I suspect there might be three types of knowledge

  1. Things everyone knows. Rather self explanatory: The United States won the Cold War, Beyonce is married to Jay Z, vaccines prevent disease.
  2. Things widely known to a small group. Specialist knowledge or domain expertise. I assume there are facts about concrete known to all Engineers, like how most economists know the Philips Curve.
  3. Things almost no one knows. What I had for breakfast, quantum mechanics, and answers to Peter Thiel’s interview question: “What important truth do very few people agree with you on

I suppose we could add a fourth: things no one knows. Donald Rumsfeld’s unknown unknowns go here.

The GFC is usually compared to the Great Depression of the 1930s or Stagflation of the 1970s, but in what is a great candidate for #2, I recently discovered another Great Depression.

The First World War was the Great War until a bigger one came along. It turns out the Great Depression also usurped the title from one that came before, now known, rather unimaginatively, as the Long Depression. It lasted from 1873 to 1896 (although in some places it ended much earlier).

To give a sense of perspective, imagine a depression starting in 2008 lasting until 2031. We would be just about halfway.

Doubts and Fools

History may not repeat, but it does rhyme.

It is a disaster that wisdom forbids you to be satisfied with yourself and always sends you away dissatisfied and fearful, whereas stubbornness and foolhardiness fill their hosts with joy and assurance

Montaigne (1580)

For I found myself embarassed with so many doubts and errors that it seemed to me that the effort to instruct myself had no effect other than the increasing discovery of my ignorance

Kierkegaard (1843)

The whole problem with the world is that fools and fanatics are always so certain of themselves, and wiser people so full of doubts.

Bertrand Russell (1872-1970)

In search of a better analogy

Donald Trump’s most enduring legacy may well be relations with China. In a country barely able to arrange mail-in ballots, a tough line on China has become a rare bi-partisan issue. Washington has reoriented itself rapidly. Obama’s Pacific Pivot had rebalanced US resources to Asia, but it is one thing to complain about undervalued exchange rates, quite another to start the biggest trade war since the 1930s; bi-lateral tariffs total $730 billion and were responsible for recession scares across the developed world in 2019.

The shift is deeper than a change in policy instruments. During the 1990s and early 2000s, US policy had been to integrate China into the world economy, turning a blind eye to its trade practices in return for cheap consumer goods and the expectation of political reform. It was hoped that economic liberalisation would lead to political liberalisation and the eventual transformation of China into another South Korea or Taiwan. Tying economic and political liberalisation together was win-win policy for the US. China would either liberalise and become a friendly member of the liberal world order, or resist reforms and stagnate into irrelevance.

This dovish optimism was dashed by the rise and resilience of Xi Jinping’s brand of authoritarian state capitalism.

Today’s escalating tensions with China are rooted in a new, hawkish, calculus. This May the White House released its Strategic Approach to China:

The PRC’s rapid economic development and increased engagement with the world did not lead to convergence with the citizen-centric, free and open order as the United States had hoped… To respond to Beijing’s challenge, the Administration has adopted a competitive approach to the PRC

Dovish liberals continue to strike an uncomfortable balance between maintaining economic relations and condemning China’s behaviour in Xinjiang or the South China Sea. Angela Merkel has argued “against regarding China as a threat simply because it is economically successful.” However, with more and more allies lining up behind the US assault on Huawei and other Chinese technological companies, this position looks increasingly out of place.

Source. As of mid 2019.

Trump’s advisors are burning bridges to make a return to the dovish policy of the past impossible, regardless of who wins in November. Biden will be more sophisticated and less capricious, but China policy will remain stripped of optimism. China is now firmly a geopolitical competitor.

A New Cold War?

This shift comes with an accompanying analogy, the new Cold War. It provides a coherent frame for the rush of policy lurching out of the White House. Anxieties about China are useful for those lobbying for new defence projects, like the renewal of the US’ nuclear arsenal (already eighteen times larger than China’s). For the two-thirds of Americans who now distrust China, the Chinese political landscape is full of symbolic triggers – the Communist party, the red flag, military parades, and 5-year-plans (2021 will mark the fourteenth). The Cold War’s familiar ending and moralistic cast are an appealing alternative to the grim ambiguity of the post-9/11 world.

Mark Schiefelbein / Associated Press

Nor is the analogy wholly at odds with events. China’s military and economic power, still partly latent, make it a gravitational pole unlike any modern nation-state except the United States or the former Soviet Union. Security policy is back. Hard questions about territory, power, and sovereignty are resurfacing into politics. Hawks are right to worry about security competition, but wrong about seeing it as a new Cold War.

The familiarity of the Cold War analogy is deceptive. Consider China’s integration into the world economy. Hawks acknowledge this but treat it as a nuance on an old dynamic. The reality is that there is no comparison between the Soviet Union and China. The Soviet Union was an autarchic block; China the success story of export led development. In 1973 Soviet Union exports to nine western countries totaled $23 billion in 2019 dollars. Chinese exports to the US alone were $452 billion in 2019. Beneath trade in goods sits trillions in cross-border financial claims. The integration extends to technology, travel, and tourism. Chinese students are an essential fixture on Western campuses and have turned education into Australia’s third largest export after coal and iron ore.

Authors calculation

Until very recently this integration gave China’s external relationships an optimistic tinge. China does not share the missionary zeal for world Communism that animated the Soviet Union and has been content to extend its influence through debt and infrastructure diplomacy (not without their problems), not armed groups.

The scale of integration is unprecedented. In the decades prior to the First World War, the world went through its first great phase of globalisation. Germany was the challenger power of that time, then, as now, a center for manufacturing and exports. In 1913, German exports made up 16% of GDP. Today they are 47%, with total merchandise trade hovering above 70% of GDP.

Today, much of China’s strength is latent and doubts remain about the sustainability of its growth model and the CCCP’s stewardship. It is possible that Soviet style stagnation awaits, but forward-looking policy must deal in the possibility that obstacles will be overcome. If so, the Cold War analogy will not serve.

For all their differences, both hawks and doves take US hegemony as their starting point. They draw their analogies from the familiar stories of the post 1945 order. A more accurate search would go further back, to the emergence of the only suitable analogy to China, the United States itself.


In 1865 the American Civil War ended. Over the next fifty years the United States would knit itself back together with westward expansion, a massive industrial boom, and waves of immigration. This culminated in 1916, when the GDP of the United States overtook the British Empire, then the world’s predominant power.

Adam Tooze’s The Deluge Loc 357 (Kindle)

This is the starting point for ‘The Deluge,’ Adam Tooze’s history of the interwar period. The narrative, which takes in Chinese domestic politics and the Argentinian far-right alongside familiar milestones like the Kellogg-Briand pact (which rather awkwardly sought to outlaw war), is underpinned by the emergence of the United States onto the global scene. The American Century began in 1916, not 1945, with the European powers contemplating a: “universal, world-encompassing empire similar to that which the Catholic Habsburgs had once threatened to establish.”

This came as a profound shock. Contemporaries from Hitler, to Trotsky, to the British Foreign Office were painfully aware of being eclipsed by a “novel kind of super-state:”

“it was the overshadowing of the European power states – a model originating in seventeenth-century Europe and imported to Asia by Japan – by the challenges of a new era and the rise in the form of the United States of a different focus of economic, political and military authority. As a memo compiled by the British Foreign Office put it in November 1928: ‘Great Britain is faced in the United States of America with a phenomenon for which there is no parallel in our modern history – a state twenty-five times as large, five times as wealthy, three times as populous, twice as ambitious, almost invulnerable, and at least our equal in prosperity, vital energy, technical equipment, and industrial sciences”

Today, a world order organised around American hegemony appears natural; the inevitable result of long-run economic forces. Contemporaries did not see it that way. While it was clear the emergence of the United States demanded a response, there was nothing inevitable about the shape it took.

His account is full of contingency. In 1916, the US’ lead was small, and the European powers could (and did) ignore its wishes. Had events gone differently then the war might have ended before the European powers were bled white and left buried under a mountain of war debt; the 1923 agreement on British war debt required an annual payment equivalent to the budget for national education.

What emerges are repeated attempts to fashion a new world order incorporating this “novel kind of super-state.” While few European states relished their reduced role, none believed it could be ignored. The special relationship with the United States and the European project both emerged as possible responses in this period. German fascism too, with its Lebenstraum obsession, the ‘living space’ for the German people to be carved out of Eastern Europe, was partly a response to the continental sized resources of the United States.

It is here, in the three-decade attempt to fashion a new world, that we find the most productive analogy for today.

There are important differences. Today’s order is stronger than it was in 1916. There has been no war between major powers in decades. Our institutions ride decades of inertia. Unlike the British Empire in the 1920s, the United States still has the capacity to be the world’s policemen. Nor is China as powerful as the United States was. This century’s 1916 moment is unlikely to come until the 2030s and today, China’s per-capita GDP is still lower than Brazil’s. China only plans to finish modernizing its defence forces by 2035.

These differences do not detract from the core point. China will soon be a globally integrated super state not seen since the emergence of the United States in the early 20th century. 1916 frames today’s politics around the unprecedented and the unknown. It demands we refuse easy analogies with familiar endings.

1916 suggests several lessons. Firstly, no one and no arrangement will be left unaffected. This is a question for large trading partners and regional neighbours as much as African petro-states like Angola or Brazilian soy-bean exporters. The point appears trivial, but the implication is to vastly increase the complexity of the issue. Already it is shifting the domestic calculus in states from the Solomon Islands to Serbia. The longer a systematic solution takes to organise, the greater the pressure on smaller states to act independently and unexpectedly.

Ultimately, responses must reach beyond the simple binaries of confrontation or détente. China’s scale and integration make passive coexistence insufficient. Cold-War confrontation would be wildly irresponsible given the global stakes in China and its reasonable expectations for regional influence. It is hard to escape the conclusion that the United States will simply have to make room at the top, as others once did for it.

And Brutus is an honorable man

I read Mark Antony’s speech at Caesar’s funeral – “friends, Romans, countrymen, lend me your ears” – in school. It did not register.

Years later I came across this recording of Damian Lewis’ on the 400th anniversary of Shakespeare’s death. It gives me chills every time I watch it.

The versions by Marlon Brando (1953) and Charlton Heston (1970) are different and all the better for it.

Before you get too weepy eyed for Caesar, read Michael Kulikowski’s, “A Very Bad Man.” Caesar famous conquest of Gaul was a genocide, with perhaps up to a million killed.

They don’t talk like they used to

From Walter Bagehot’s ‘Lombard Street‘ (1873), quoting then Governor of the Bank of England on its conduct in the Panic of 1866:

This house exerted itself to the utmost – and exerted itself most successfully – to meet the crisis. We did not flinch from our post. When the storm came upon us, on the morning on which it became known that the house of Overend and Co. had failed, we were in as sound and healthy a position as any banking establishment could hold, and on that day and throughout the succeeding week we made advances which would hardly be credited

Compare this to Andrew Bailey’s recent speech at Jackson Hole:

In June we increased the stock of QE purchases, but at a slower pace. And in August we introduced forward guidance, stating that the Committee does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably… We also made clear that our box does include other tools, including the possibility of negative rates. We have used private sector asset purchases through the corporate bond programme, longer-term liquidity provision to banks with targeted lending incentives, and direct purchasing of newly issued commercial paper to supplement market-based lending channels. We are not out of firepower by any means, and to be honest it looks from today’s vantage point that we were too cautious about our remaining firepower pre-Covid.