I have a confession to make. I never understood military history. I don’t go out of my way to read military history, but in reading ordinary history I have often come across explanations of how the greatest generals in the world were able to achieve success. There is often a description of how a general would “outflank his opponent” and rout the enemy army. Or “grab the heights”. Or engage in an “early morning surprise attack”.
Here’s what I 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 judgment. Unlike me, Montaigne understands military history. And he uses this essay to examine one instance after another where the same military strategy that worked in one case failed in another. So, in what sense can we say that the reference to these strategies explains anything?
I see the same problem in many areas of life:
Policy: When I was young, I remember George Romney’s failed 1968 campaign after a little “blooper” about the Vietnam War. This was often cited as an example of how running for president was serious business and voters would not tolerate anything even slightly unconventional. And then Donald Trump arrived.
Sports: We’re often told that a certain strategy doesn’t work in the playoffs, until it does. Or that a certain athlete is “clutching” until he is no longer. I’m told you need a great center in basketball and then see great centers “played on the floor.” The older I get, the less convinced I am of the conventional wisdom of sports commentators.
Business: Management courses are full of case studies showing what strategies work. But the real world is full of 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, although they are very different, their personalities complement each other. And we’re told that Fred and Alice have a successful marriage because they have similar interests and personalities. So which one is it?
Movie theater: A certain movie becomes a big hit. Hollywood makes another film in the same style and it fails. One of Hollywood’s most famous sayings 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 don’t crash as expected. Do we really know anything about bubbles?
Banking: We have a major banking crisis in 2008 because a lot of commercial loans went bad. We are told that banks need to invest in safer assets, such as government bonds. Silicon Valley Bank does and goes bankrupt when yields rise and bond prices fall.
This is why government regulation is not well suited to address issues such as excessive risk taking caused by moral hazard. If commercial loans are too risky and government bonds are also too risky, what else? 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 of its funds with the Fed.
We (meaning experts, regulators and politicians) think we understand the banking problem, but we don’t. We have created a system that almost completely socializes the liabilities of bank balance sheets. Without market discipline, banks have little incentive to behave responsibly. We then assume that the solution is “regulation”.
How likely is regulation to solve our banking problems? Consider the following analogy. Give me a book on “How to be a General” and have me face off against someone like Alexander, Hannibal, Napoleon, Patton, etc. What is the probability that I will succeed? Now give a young, inexperienced government bureaucrat a book on how to regulate the banking industry and pit him against JP Morgan.
Good luck.
PS Matt Levin has a great article on how difficult it is to regulate banks. He points out that even the most basic questions are difficult to answer. No one even knows if higher interest rates are good or bad for banks.
PPS George Romney said he was ‘brainwashed’ by generals he spoke with in Vietnam into believing the war was going well. Apparently some voters didn’t understand that “brainwashing” can be a metaphor and assumed he had some sort of electrodes attached to his brain. Yes, it was the “scandal” that cost him the presidency. (Mitt Romney is his son.)
PPPS Yesterday a key NBA playoff game resulted in a lopsided result of 128-102. When the score is this unbalanced, it’s often because a team isn’t trying hard enough. So I checked the box score and saw that one team had 21 offensive rebounds while the other had only one. And of course, sports commentators almost unanimously criticized the losing team for their lack of effort. But there is just one problem. It was the team with the lackluster effort that got all 21 offensive rebounds. So what’s going on here? I suspect that people deduct the effort from the result. Losing so badly feels like you haven’t even tried, especially when you have the most talented team. BTW, I don’t want to criticize the NBA commentators – that was my impression watching the game as well.
I am increasingly of the opinion that we all overestimate how well we understand the world. But fear not, soon all human commentators influenced by emotion will be replaced by GPT-4 powered simulated humans, who will crunch all the numbers and tell us what really happened in the game.
That’s what we all want, isn’t it?
