I have a confession to make. I’ve never understood military history. I don’t go out of my way to read military history, but while reading ordinary history I’ve often run across explanations of how the world’s greatest generals were able to achieve their success. There is frequently a description of how a general would “outflank his opponent” and rout the enemy army. Or “seize the high ground”. Or engage in a “surprise early morning attack”.
Here’s what I’ve never understood. Why don’t both sides try to do these things?
I recently read an essay by Montaigne entitled, On the uncertainty of our judgement. Unlike me, Montaigne does understand military history. And he uses this essay to examine one example after another of where the same military strategy that worked in one case, failed in another. So then in what sense can we say that reference to these strategies explain anything at all?
I see the same problem in many areas of life:
Politics: When I was young, I recall George Romney’s 1968 campaign failing after a minor “blooper” about the Vietnam War. This was frequently pointed to as an example of how running for president was a serious business and voters would not tolerate anything even slightly unconventional. And then Donald Trump came along.
Sports: We are often told that a certain strategy doesn’t work in the playoffs, until it does. Or that a certain athlete is “clutch”, until he isn’t. I’m told you need a big center in basketball, and then see big centers “played off the floor.” The older I get, the less convinced I am by the conventional wisdom of sports commentators.
Business: Management classes are full of case studies showing which strategies work. But the real world is full of both successes and failures associated with any given approach used by a CEO.
Relationships: We are told that Jack and Jill have a successful marriage because while they are very different; their personalities complement each other. And we are told that Fred and Alice have a successful marriage because they have similar interests and personalities. So which is it?
Cinema: A certain movie becomes a big hit. Hollywood makes another movie in the same style and it flops. One of the most famous sayings in Hollywood is William Goldman’s observation that, “Nobody knows anything.”
Markets: We are told that speculative assets like Pets.com were obviously a bubble that would eventually collapse. But then even more speculative assets like Bitcoin come along, and fail to collapse as predicted. So do we actually know anything about bubbles?
Banking: We have a major banking crisis in 2008 because lots of commercial loans went bad. We are told that banks need to invest in safer assets, such as government bonds. Silicon Valley Bank does this and goes bankrupt when yields rise and bond prices fall.
This is why government regulation is not well suited to solve problems such as excessive risk taking caused by moral hazard. If commercial loans are too risky, and government bonds are also too risky, what’s left? You could have a perfectly safe “narrow bank”, but the Fed refused to give a banking license to an entrepreneur who tried to create a bank that invests all its funds with the Fed.
We (meaning pundits and regulators and politicians) think we understand the banking problem, but we don’t. We have created a system that almost completely socializes the liability side of bank balance sheets. Without market discipline, banks have little incentive to behave responsibly. We then assume the solution is “regulation”.
How likely is it that regulation can solve our banking woes? Consider the following analogy. Give me a book on “How to be a General” and have me go up against someone like Alexander, Hannibal, Napoleon, Patton, etc. How likely is it that I’ll succeed? Now give a young inexperienced government bureaucrat a book on how to regulate banking and have them go up against JP Morgan.
Good luck.
PS. Matt Levine has an excellent post discussing the difficulty of regulating banks. He points out that even the most basic questions are difficult to answer. No one even knows whether higher interest rates are good for banks or bad for banks.
PPS. George Romney said that he had been “brainwashed” by generals he spoke with in Vietnam into believing the war was going well. Apparently some voters didn’t understand that “brainwashed” can be a metaphor, and assumed that he had some sort of electrodes attached to his brain. Yes, that was the “scandal” that cost him the presidency. (Mitt Romney is his son.)
PPPS. Yesterday, a key NBA playoff game resulted in a lopsided 128-102 outcome. When the score is that lopsided, it is often because one team doesn’t try hard enough. So I checked the box score and saw that one team had 21 offensive rebounds while the other had just one. And sure enough, the sports commentators almost unanimously criticized the losing team for a lack of effort. But there’s just one problem. It was the team with the lackluster effort that got the 21 offensive rebounds. So what’s going on here? I suspect that people infer effort from outcome. Losing that badly makes it look like you didn’t even try, especially when you have the more talented team. BTW, I don’t mean to criticize the NBA commentators—that was also my impression while watching the game.
I’m increasingly of the view that all of us overestimate how well we understand the world. But have no fear, soon all of the human commentators that are swayed by emotion will be replaced by simulated humans powered by GPT-4, who will crunch all the numbers and tell us what actually happened in the game.
That’s what we all want—right?
