I had a good conversation with someone today about what's changed in politics in the last few years and he made the very apt observation that people just don't have as much conviction as they used to. It got me thinking about the various reasons why it looks like mistakes made in the past look set to be made again now.
"History doesn't repeat, it's just that human nature is constant."
I've been thinking about this for a long time, I've always wondered why people don't tend learn more from historical events. Sure for many it just comes down to ignorance, it's very easy to just not pay any attention to what's happened in the past. But I find a lot of people do have some understanding of stuff that's happened in the past but still don't bring themselves to change what they are doing based on that information. Specifically I wondered why it was that people could go and study past events but then not have their decision making and actions change when confronted by the same thing in the present1.
Finding out what happened in historical events can be exceedingly difficult depending on how long ago and the quality of information that was recorded at the time. People can get caught up in that difficulty and even spend their entire lives researching some aspect of what happened. But the hard part about learning from history is not so much finding out what happened but rather is changing ourselves.
I see a lot of events right now that remind me of things that happened in the lead up to world war two. One particular topic I've tried to look at more closely is monetary policy. The world today really is substantially different from the world of the 1920s-1930s in many ways. However the extreme greed and fear that led people to make catastrophic policy mistakes in monetary policy are just the same today as in times in the past. Having the courage to take a more rational better path that avoids just going along with the deepening insanity that the masses are engaging in is hard2.
Without having being negatively impacted yourself or having direct family members or close friends who have been impacted by something it's much harder to be emotionally engaged with a topic. This lack of connection and emotion with past events caused by similar lines of thinking I think makes a lack of courage in the present moment a lot more common. Having friends and family who have been impacted by something is very powerful and there seems to be a cycle that plays out in society that is over the timeframes where people who have experienced events pass away and can no longer tell other people about them, this is likely 50-70 years or so. I feel that we very much are living life at the end of a multi generational cycle or a Kondratieff wave at the moment. The lessons from the depression era and world war two are starting to be forgotten as the people of that era are passing away and the children of that era are also passing away. The world also is changing too, but I'm not sure we are changing in the ways that we need in order ot be able to best respond to this. I feel that the world is currently in desperate need of people being more informed and acting with more courage to avoid the inevitable upcoming changes that accompany the end up such a societal wave being a disaster.
Perhaps there's some connection with the generation heuristic and learning from history. Think of say someone being told to not touch a hot stove because to avoid getting burnt. If someone actually touches the hot stove and gets burnt this is likely to lead to a very vivid memory of what happens which most likely will never be forgotten. Seeing this at an intellectual level is likely to be a lot less vivid. I suspect, but have no rigorous data to back this up, that this is why memory has been an evolutionary advantage, people who have better memories are better able to avoid making mistakes which then is advantageous to them. I suspect this is what's really going on with the generation heuristic. A good example of this was that in the beginning of 2021 I started to say that I thought a large inflationary wave was about to hit the world, at the time most people were buying into the "transitory inflation" lies and the "V" shaped recovery lies because they didn't understand the true impact of inflation or how it actually worked in practice. A good example that illustrated the difference in mindsets that people can have on this topic came up at a dinner event earlier in 2021 where I mentioned that I though heavy to extreme inflation was coming to many countries in the next few years. Many at the table intellectually could see that this wasn't great but they couldn't really understand what this meant in practice, much of it was too nebulous to really make people want to change what they were doing as a result of this information. This was in stark contrast was the reaction from someone who lived through the Yugoslavian extreme hyperinflation in 1992-1994 who had much more of an emotional understanding of it. This was an especially brutal period of hyperinflation, one that I'm surprised gets so mentioned so infrequently given that it didn't happen all that long ago. To them this was not just some snippet of information out there in the general data smog of modern life, this was so severe that it was a very literal threat to survival. When you experience something like this it creates emotion which is fuel for courage to change. When I was younger I never really understood the concept of sound money, it took a while of having life experiences that showed the ongoing destruction of the purchasing power of the dollars that I was earning for the hours of work I was doing to prompt me to start to ask why things were the way they were. When I was at university I remember many people claiming that non-sound money was the way of the future and Austrian economics was very much not in vogue. I think there's extreme danger in some of the ideologically driven things that people are being given in educational institutions at the moment regarding how money should work. The life experiences I subsequently had outside of academia inspired me to look into the way economics works and part of this was looking more into the history of currency debasement. Reading through the history of these things really helped me to understand the impact policies had on the daily life of many people and I could see this very clearly in my own life too. While the ancient Roman empire existed a long time ago part of the fall of it was related to the ever present temptation of rulers to debase their own currencies. This is worth mentioning too, these people from history are people just like us, they had their own hopes and dreams and motivations in their lives that are much like ours. When considering how history impacts on today we can see that monetary policies impacts us very directly, for the most part in economics this time it is not different because we as people tend to not be all that different. The years I lived in Canada were a vivid and stark example of how bad monetary policy ruins a nation, people were getting so far behind due to wages being utterly stagnant while rapid cost of living increases were going on. Much like in other historical times the option of turning to debt to fund lifestyles was taken, and just like in other examples of history increasing indebtedness to deal with unsound money is a terrible trend as it tends to allow the monetary stability to deteriorate further. Eventually what could have been dealt with starts becoming increasingly impossible to control and small policy errors can accumulate over years to the point where a full blown crisis becomes almost impossible to avoid. The nasty thing about monetary policy is that due to a lack of understanding of economics, game theory and psychology most people don't have the mental models needed to actually appreciate the reasons why things have happened the way they have. Even experiencing this sort of extreme currency debasement is not enough for many people to come up with a good approach to fix the problems. Much like experiencing a bridge collapse is not sufficient on its own to let you understand how to build a bridge. But when you do the hard work to build a solid understanding it gives you a deep well of energy to try to push for change because you start to see just how big a deal this really is, you know how much better things could be and complacency becomes far more annoying as a result. Sound money is far more a matter of maintaining human dignity than it seems on the surface. The stakes to this are very high and my only hope is that masses of people don't have to live through another financial crisis and banking disaster to realize this is so. If we can change ourselves and change our outlook we can change our path through history to be a better one. ↩
I'm seeing a lot of people "investing" now who seem to have no fucking clue what they are doing. Something I like about hanging around at cafes or other public venues where you can have incidental conversations with people is the window it gives into people's thought processes that you'd otherwise not see. An example of this from the other day was a guy saying that he thought markets could be turbulent in the next little while, so I asked him if he was long volatility, it was clear that he didn't know but to avoid looking embarrassed he said that "I guess I'm trying to get my position to be short volatility with all the turbulence coming up". It scares me that so many people are getting drawn into investing without any knowledge of it by economic trends that are influencing their lives that they are not aware of. In this case this particular guy was aware of the low interest rates in the bank and was aware of the high inflation in cost of living so he wanted to do something to try get a yield. Obviously there's a huge bit of FOMO and greed in the mix too, but unfortunately a melt-up event on the equities markets can be entirely driven by the combination of greed and ignorance from a large enough group of people. Most of these people will not sell at the top and will get wiped out simply because they don't understand what they are doing. ↩