1/ A thread about black swans, worldviews and economics that I have been thinking on for months.
2/ In 1951, a 21 year old investor was sitting in the living room of his future father-in-law’s house.
3/ His father-in-law was explaining to him that as soon as America had gone off the gold standard he explained, the economy was doomed.
4/ America would spiral down into oblivion. He knew that the young investor would do his best to care for his daughter and he didn’t blame him for the coming downfall.
5/ His future son-in-law listened politely, but payed little attention. He saw bright prospects for America ahead.
6/ That young investor was Warren Buffett, and, obviously he was the one that history showed to be right. Far from collapsing, the economic growth that took place in the U.S. in the second half of the 20th century is absolutely unparalleled in human history.
7/ There are at least two ways of interpreting this story.
8/ One is that Buffett’s father in law, William Hertzog Thompson, was the Austrian/goldbug type who, no matter the prevailing conditions, would see doom and gloom.
9/ He is flat out wrong and the last ~7 decades have proven this conclusively.
10/ Though there have been plenty of bumps along the way, global and U.S. growth has been persistent for nearly 70 years since his prediction.
11/ The other interpretation is that Thompson was right in principle, but wrong in timing.
12/ There is often a long lag time between a catalyst and it’s effects.
13/ Nero is often given as an example of the decline of the Roman Empire, but Nero ruled from 54-68 AD, centuries before the Roman Empire actually collapsed.
14/ We can see all the signs of Rome’s decline in Nero’s reign, but if you’d bet against the Roman Empire during Nero’s reign, you’d have had to make it a long, long bet to be proven right.
15/ There is usually no difference between being "right, but too early" and just being wrong.
16/ However, an astute student of history looking back at Nero many years later might have seen Nero for the catalyst he was and correctly predicted the fall of Roman Empire at the right time. It seems unwise to discount entirely.
17/ There have been many comparisons drawn between the declining American Empire and the declining Roman Empire as well as Nero and Donald Trump.
18/ There are two interpretation hers.
19/ One possibility is simply that it is just wrong. It was wrong in 1951 and it’s still wrong today.
20/ The other is that Thompson was directionally correct, but much too early.
21/ This possibility argues that the black swan-prone nature of the modern world is making transitions happen faster.
22/ It took Rome four centuries to fall, but the British Empire, which was the unquestioned global hegemon in 1914, was playing second fiddle to the U.S. and USSR by mid-century, only about four decades later.
23/ The fall of the British Empire was accelerated by two black-swan type World Wars in Europe had no historical precedent at the time.
24/ Will some black swan event of unprecedented historical impact accelerate the decline of the U.S. and the U.S. dollar in the next decade in the way Thompson predicted?
25/ I am mostly of the mind that Thompson was directionally correct and too early and that over the next few decades black swan type events will reshape the global order in a pretty massive way.
26/ But, the possibility which I can’t get out of my mind is that there is something in my personality or world view that causes me to see the world like Thompson not because it is true, but because it is a certain psychological predisposition.
27/ As always, this is just me thinking out loud. Thoughts, feedback and criticism welcome.
28/ Also not sure I've articulated my self well here. I'm still trying to wrap my head around the Keynsian/Austrian debate.
