Preparing for the Next Catastrophe

Given his standing as one of our leading public intellectuals-- standing that has been well earned-- we take notice when Niall Ferguson opines on matters of economic history.

This time, his venue is the venerable journal, Foreign Affairs. In it Ferguson suggests that the best approach to pending calamity is to be paranoid. After assessing the different success rates of countries like Taiwan, South Korea and Israel, especially when compared to the failed policy responses in places like America and Great Britain, Ferguson concludes that countries that suffer from paranoia do better than countries that do not.

Presumably, Ferguson is using a non-clinical definition of paranoid, because the conditions he describes do not fulfill the definition. Paranoia is a psychosis. It involves a conviction that one is surrounded by enemies and that these enemies are about to destroy everything that one holds to be holy. The problem is, if you are surrounded by enemies who want to destroy you, you are not being paranoid, you are being realistic. At best, we can say that you are feeling a certain quota of anxiety, anxiety that is based on the existence of real threats. 

So, anxiety based in reality is not the same as paranoia. One should not confuse the two. One should not glibly toss around psychiatric terms when doing geopolitical analysis.

Besides, the countries that did well with the virus have other characteristics in common. They are small, compact and unified. Large, unwieldy countries where everything is politicized are not likely to do well.

He does add, however, that the countries that did well are technologically advanced, point which has little to do with paranoia.

To allow Ferguson his argument:

What these three countries have in common is a general sense of paranoia: a fear that they could be swept away by any number of threats stemming, directly or indirectly, from hostile powers in their regions. Instead of trying to predict one or two future emergencies and prepare for them with cumbersome contingency plans, these countries emphasize rapid reaction and the deployment of technology to maximize their ability to turn on a dime.

I would be remiss if I did not counterpoint Ferguson’s analysis with an article from today’s Financial Times. In it one Ruchir Sharma, the chief global strategist for Morgan Stanley Investment Management, remarks that countries that appeared to have the virus under control have lately seen outbreaks. He adds that countries that seemed to be doing badly, like Great Britain, have lately been doing well at vaccinating people. It is difficult to predict the outcome, he says, in the middle of the game. Link unavailable.

To return to Ferguson, we note some other remarks in his long essay. The first, involves black or gray swans, that is, the ability of nations or individuals to predict the next calamity-- the better to prepare for it. In some sense, as Nassim Nicholas Taleb has argued in his theory of the black swan, the event that is most likely to damage us is the event we have not predicted and for which we are not prepared. If everyone is running around hysterically predicting that climate change is going to destroy the planet, you can feel fairly confident that climate change is not going to destroy the planet. 

So, Ferguson opens his essay by remarking that at the beginning of 202o no one foresaw the damage that a global pandemic was about to do. Their attention was riveted on other risks:

In January 2020, government and business leaders from around the world gathered in Davos, Switzerland, for the annual World Economic Forum. Among the attendees, there was widespread agreement that climate change was the principal threat to humanity. George Soros said it. Greta Thunberg said it. The forum’s Global Risks Report, published shortly before the Davos gathering, listed as its “top five global risks in terms of likelihood” extreme weather, climate action failure, natural disasters, biodiversity loss, and human-made environmental disasters. Three climate-related risks also made it into the forum’s top five “in terms of impact”—a distinction that pandemics had not achieved since 2008. Yet even as the great and the good mingled in Davos, a deadly and highly contagious novel coronavirus was rapidly spreading around the world.

We can be fully confident that if Greta Thunberg and George Soros foresee a climate catastrophe, we can dismiss the chance that this will happen in the near or distant future. Or, as Ferguson says:

But to focus exclusively on climate change is to risk underestimating other potential catastrophes: wars, revolutions, and genocides, not to mention volcanic eruptions, earthquakes, droughts, floods, tempests—and plagues such as the COVID-19 pandemic, which continues to wreak havoc on lives and livelihoods around the globe.

Obviously, if we are all prepared for these catastrophes, none of them will cause as much damage as the calamity that we do not foresee. I will not say that the pending catastrophe has been completely ignored, but, if I were to put on my prophet hat, I would suggest that the next calamity will involve the status of the United States dollar. That is, it will take place in the money markets. The cryptocurrency mania seems like a foreshadowing of what will happen when the dollar loses its reserve status and the Federal Reserve can no longer print us out of bankruptcy. As of today, more and more economists are totally confident that Fed money printing, and government deficits are not a problem. A notable exception to this Pollyannaish confidence is one Lawrence Summers, not a member of the vast right wing conspiracy, but who has declared that he is very concerned about the chance that the government will print too much money and will precipitate a very bad bout of inflation. When a Democrat says that what is called modern monetary theory is a large mistake, we take serious notice.

Since there is no shame in being a false prophet, take it for what it’s worth.

Anyway, to allow Ferguson his viewpoint, which is that of an economic historian:

There is no cyclical theory of history that can foretell the timing, the scale, or the nature of the next big disaster. This helps explain why societies tend to lurch from one crisis to the next, often preparing to fight the last war right up until the moment the next and quite different one breaks out. It also explains why bureaucratic preparedness for any given type of potential disaster is worth only so much. Many Western governments were well prepared for a pandemic on paper. Yet they failed to contain the deadly virus while other countries—in particular, Taiwan, South Korea, and Israel—fared much better. 

True enough, bureaucratic preparedness is not a good indicator of bureaucratic efficiency. For my part I would have been happier to read an analysis of the differences between different bureaucracies. After all, Ferguson himself noted in the past that during the Eisenhower administration the bureaucracy functioned effectively to contain a flu outbreak. And it is clear, as he also noted, that today’s government bureaucracy is fundamentally dysfunctional-- not necessarily because it is a bureaucracy but because it has been politicized, on the one hand, and because it has hired people not because they are competent but because they are diverse.

One enjoys reading cogent and intelligent analysis, but, that said, its value lies in its ability to show us new ways to think about issues, even if it is not quite right.