Michael Hanson
Business in Review

The Age of the Unthinkable

By, 04/27/2010
Several clients have brought Joshua Cooper Ramo's new book to my attention: The Age of the Unthinkable: Why the New World Disorder Constantly Surprises Us And What We Can Do About It (long enough title?).

The author is a distinguished guy: Managing director at Kissinger Associates, a "geostrategic" advisory firm (I'm not entirely sure what that means), and former assistant managing editor of Time magazine. But this review is going to be detailed, and very critical. It's not that the book is so bad, it's just that it's so close to being right…but isn't. Its subject is geopolitics and not expressly capital markets, but Ramo throws them all into the same bucket—saying they're all "complex" systems (more on this in a bit). Complexity theory is a great venue to study such things, but both Ramo's premises and conclusions are shaky.

That's hugely frustrating, and warrants some attention because complexity theory is the "hot new thing" in a lot of economic alcoves, and is threatening to hit the mainstream more readily in years to come. Thus, it's good to know what works and what doesn't when thinking along these lines. In terms of style and readability, this is a fine and entertaining read. Ramo is an excellent writer and journalist.

Let's take a look under the hood.

The Problem Is the Premise

The real problem with this book is its premise: That today is the beginning of an age where culture, technology, government, economies—the whole world—are experiencing rapid and accelerating change that will have effects no one can anticipate or understand, and that vast upheavals will result.

This is both true and untrue. At best, we are in the middle of such an era. Starting at least with the Industrial Revolution, economies and governments of the world have undergone rapid and ever accelerating change—all of it unpredictable as it was happening. Those that were born about at the beginning of the 20th century saw bigger change than any generation before them—with a good bit of the world going from largely rural and agrarian to what we have today. That was the true beginning of accelerating change. There is nothing so special about the present moment in this regard, though many would like to think so tied to the financial and geopolitical chaos of the last decade.

Indeed, the foundational premise of this book is taken as given and without so much as a few pages to actually prove such a proposition. Ramo refers to a "hockey stick" graph, where the rate of change was constant for a long time, then suddenly—as in, now—the chart jerks upward and we see hyperbolic global change. Yet, there is no statistical evidence to support any of that. It may feel that way, yes, but it's the tendency of folks to always feel the present era is getting beyond control. Again, if the hockey stick theory is right, it started well over a hundred years ago.

This book references a litany of thinkers and lauded studies—it's intellectually dazzling in this sense—yet fails to reference the preeminent thinker on this topic: Ray Kurzweil. His book, The Singularity Is Near, shows in painstaking detail that accelerating change has been going on worldwide for a very long time and is not new.

What I believe this actually is, in disguise, is a fairly banal "new normal" argument. Ramo is saying that now is different, and so we have to think differently. Well, every era is different in its own way. There is nothing privileged about today's difference. And the prevailing economic and capital markets recovery of the last year or more reflect that.

Complexity Theory, Misapplied

There's an old philosopher's joke, apt for this book. No matter how overmatched you might be, you can win any philosophical argument by simply saying, "Well, yes, but it's actually more complex than that." There's no way a philosopher can surmount it! It's always true!

Complexity theory, to my view, is one of the most exciting and important new theoretical fields in understanding economics. My own book, 20/20 Money, is based on its foundations. I was stunned when I read that Ramo co-chaired the Santa Fe Institute's first working group on Complexity and International Affairs. The Santa Fe Institute is perhaps the world leader on complexity theory. I was stunned not because he held such a position, but that someone of that position could misapply complexity theory so greatly.

To tout complexity theory is a fine thing, to say that we can't ever understand exactly how the world works because it's too vast and complex to fathom, that there are interconnections in the global economy so deep no computer could ever suss them out fully—is righteous.

But that doesn't mean there aren't patterns to be discerned with real causality behind them. And even if the patterns of this world break down, they don't do so "instantly"—they generally happen gradually and are replaced by new ones. For instance, correlations between stock market returns for countries can break down over time, but those trends can last for many decades. Complexity theory shouldn't teach us that the world is unintelligible. The lesson is that we must exercise humility—we can't know everything, we can often be wrong, and there can be anomalies to common patterns. Which makes forecasting across any complex system a matter of probability, not certainty.

Ramo's principle example for complexity is the "sand pile." I've heard a handful of economists and thinkers articulate this idea incorrectly. Essentially, that if you start a sand pile, adding one grain at a time, you get a structure that can become huge, but at some point one grain of sand will eventually topple the whole thing—each grain moving the others in ways no one can see, until the pile is decimated. And there's no way to know which grain that will be, and how catastrophic the decimation will be because it's too complex. This is sometimes referred to as the "fingers of instability."

The sand pile is a wrong metaphor for thinking about human systems. One of the main, and vital, features of human systems is that self-directed volition (emotion, motivation, the ability to consciously affect an outcome, etc.) actually changes the whole game. It's fine enough to use examples like sand piles and ant farms (as I do in my book) as starting points to understand complexity theory, but it's not enough. Things change drastically when we layer on consciously directed systems, with self-aware participants to affect outcomes. This, for instance, is precisely what monetary policy is.

Also, the human psyche has universal features to it. One of the amazing things about capital markets is—regardless of time, place, and circumstance—investor behavior doesn't vary that much. Panics are panics, bubble euphoria is too, no matter where you go (or when). Love and hate may take many forms, but there they are, everywhere. These things transcend culture and time. Which makes their patterns at least tacitly recognizable, if not often gamable.

So when we think of complex systems like our global economy, the lesson is not unintelligibility, it's that we must think in probabilities—patterns can tell us something about the future, even though sometimes they break down or are misunderstood (because, yes, the stock market is a complex, self-organizing system). But even chaos theory has patterns. Really!

The Fantasy of Cataclysm

Most importantly of all, though, the metaphor of the sand pile is far too pessimistic. I view capitalist economies as a Complex, Emergent, Adaptive, Systems (CEAS). Ramo discusses adaptability and emergence, but tends to focus too narrowly on the possibility of ruin within them. He says that in an increasingly complex, global world, more interconnected things brings the possibility of more ruin since all things are linked and often in weird ways. It's a fair enough point, but equal or more time should be devoted to the notion that a complex system doesn't have to be so fragile—it can strengthen and reinforce itself through interconnection too. That's the real story of capitalism and democracy through time.

Ramo spends a great deal of time talking about the need for "resilience" in today's rigid world, touting many notions and ideas—everything from natural weather systems to the philosophy of Chinese warfare to Hezbollah's methods of political maneuvering. Yet, he fails to see or acknowledge the world's biggest, most resilient system of them all: free market capitalism! That's the greatest of all human complex systems—it's dynamic, resilient, self-organizing, adaptive, and hugely complex. Again, this is a perspective issue. Ramo approaches the global economy today as a victim of complexity, whereas a more accurate view is that system itself has been resilient and stronger than most anyone believed despite a tremendous shock the last few years.

This view that increasing complexity is foremost potentially cataclysmic, that as the system gets bigger and less comprehensible it gets less stable, is more about the immediate anxiety of today's times than reality. The world is in fact stronger, more durable, and resilient than ever before—and it can get more so. Does that mean upheaval is eradicated? Of course not. It means, when calamity does strike (as it did in 2008), the global economy can recover faster and stronger than most believe—as it has. But you can't see that when you're wrapped up in the fantasy of ruin.

If you took the fatalistic view, you could never be bullish—never participate in stocks' (i.e. capitalism's) tremendous long-term gains. That view has been wrong basically forever. Even passive investors, who just plunk their money in an index, gain over time, including successive big bears like in the last decade.

Analogies and Intellectualism

My boss Ken likes to say analogies are useful but always imperfect. Mr. Ramo is a hugely learned person and a fine writer, and he uses that acumen to heap on examples and ideas from all times and places to bolster his points—everything from modern art to meteorology.

I usually enjoy such an approach—to interconnect and reinforce ideas in ways strange and counterintuitive. Unfortunately, Ramo uses too many metaphors that not only obscure his points, they end up erroneous. 

For instance, he argues we live in a world where many ideologies can prevail and multiple perspectives are key to a cogent view of reality. But he couches this idea in a series of misplaced examples. For instance, he says different-thinking artists often see "revolutions" in the world before others, then takes a multiple page jaunt into art and Modernism, using Picasso's cubist period as an example of the "multiplicity" of thought we need to experience to set better public and geopolitical policy.

This is too treacherous an analogy. If we go one step further, it explodes. In the history of 20th century art and philosophy, the next move is to say with the recognition of multiple views it should be clear that all views have some claim to truth, and at the same time all views have essentially no claim to truth—they are all "perspectives," that is, points of view. Thus, the greatest truth we can have is our fictions, our narratives. This is known as postmodernism. Perhaps Ramo is unaware of postmodernism, but I doubt that. More likely, it doesn't fit the point he wants to make and therefore isn't part of the grab bag of metaphors he dazzles us with. What all this art and philosophy does, instead, is reveal the shallowness of the idea he's proposing.

As I warned, I've been quite harsh on this book. And I beg your forgiveness because complexity is such a dear topic to my own heart. The ideas and sheer breadth of intellectualism in this work will dazzle, but at core they rest upon a foundation of sand. 

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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