
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 J.P. Morgan.
Good luck.
P.S. 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.
P.P.S. 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.)
P.P.P.S. 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?
READER COMMENTS
Michael Rulle
May 23 2023 at 7:56am
I finally read an essay by you I completely “agree” with —whatever that means. We know —-not nothing—-but as close to nothing as is possible.
we know things like math and physics, but they begin with premises. Dark energy, black holes. Etc.
Maybe I just think I agree with you. But I have never felt I have understood less about virtually every subject than I do now. What we know how to do is invent a premise and make a deduction. Not even sure about that.
Rohan Verghese
May 23 2023 at 8:06am
Regarding the 21-1 offensive rebound stat, you get the chance for an offensive rebound only when your first shot misses. My understanding is that Miami was shooting exceptionally well, and making their first shots at a much higher rate than Boston.
So offensive rebounds are a stat which has an implicit assumption, that first miss rates are similar. When first miss rates are greatly different, it’s not reasonable to compare offensive rebounds.
Scott Sumner
May 23 2023 at 11:45am
Miami rebounded less than 3% of their missed shots (1 out of 35.) Boston rebounded more than a third of their missed shots (21 out of 59.) That’s far more impressive.
Michael Rulle
May 24 2023 at 6:53am
I have to laugh——as I said, all we know how to do is make a premise and then make a deduction——re:offensive rebounds. Teams with more offensive rebounds win a higher percent of games when shooting percentage is about equal——-then there is this thing called standard error——there is no cause and effect here——just correlation.
Thomas Hutcheson
May 23 2023 at 8:27am
No one may know how to regulate banks, but raising/lowering interest rates for that purpose is surely NOT the way.
NBA
May 23 2023 at 8:45am
On the basketball point, it’s hard to get many offensive rebounds if you dont miss many shots. Plus a lot of the Celtics offensive rebounds happened in garbage time
Scott Sumner
May 23 2023 at 11:46am
See my reply above.
Andrew_FL
May 23 2023 at 8:53am
To say that Bitcoin and stock in Pets dot com are the same class of asset is to conceal the fundamental differences between them. Pets dot com was, ostensibly, a business, with bills to pay and debt to service, and a need to actual have revenue to do so. Bitcoin is a quasi-commodity, like gold or wheat or oil-no matter how low the price of Bitcoin goes, it can never “fail” anymore than any commodity can. Miners can go out of business, bankrupt, shut down their operations. But the underlying commodity continues to *exist* regardless of what happens to the miners.
JoeF
May 23 2023 at 9:01am
Interesting post. I agree that strategies may work in some situations and fail in others, depending perhaps upon context but also upon execution. Certainly, when a strategy begins to fail, it may be time to adapt to either an unforeseen context or your own poor execution. But I’ll take the entity with a bucket of proven “scientific” strategies over the neophyte (“nobody knows anything”) in the long run. Also, celebrities in politics is nothing new (“And then Donald Trump came along”), look at Reagan, Schwarzenegger, Franken, Shirley Temple and others. At least we don’t elect them based on who their parents were. Oh wait.
Scott Sumner
May 23 2023 at 11:48am
“Also, celebrities in politics is nothing new”
This has no bearing on anything I wrote. I wasn’t talking about celebrities in politics.
JoeF
May 24 2023 at 10:45am
OK, I assumed you were mentioning Trump because he had not taken the traditional political journey. The reason offensive rebounding advantage does not correlate with points advantage is because offensive rebounding is a risky “short run” strategy. In recent times, teams have found it beneficial in the long run to always get back on defense and avoid giving up easy baskets. These types of strategies have changed all sports over time. But a desperate team (down double digits) might abandon them for possible short term gain. Boston didn’t change their effort level, they just changed their strategy based on their current situation.
Scott Sumner
May 24 2023 at 12:11pm
Again, no bearing in my post. I said nothing about whether getting offensive rebounds was a good strategy. I was simply examining the question of whether Boston was working hard. Offensive rebounds require more work that just shooting one three pointer after another.
There is no question that Miami played much smarter basketball. But did they try harder? I see no evidence for that claim? Where is the evidence?
steve
May 23 2023 at 3:50pm
If you look at the history of banking is there any real evidence that banks will not crash economies if left alone? I dont think so. They eventually all gamble on the same thing and we have chaos. Didnt someone say something like “as a banker it is safer to be wrong about the same things as everyone else that to take a chance and not follow the crowd”?
I reads lots of military history. Read Sun Tzu, Clausewitz (very dense) and John Boyd (OODA loop) and you will be pretty well off. Just on flanking both generals may have wanted to try to flank the other but if one gets inside of the other’s OODA loop it is hard to catch up. What is clear is that over history better generals, given limits on logistics and troops numbers, are much more likely to win battles.
Scott Sumner
May 23 2023 at 10:42pm
I wouldn’t say that an unregulated banking system would be perfect, but it would certainly be more stable than our current system.
spencer
May 24 2023 at 8:30am
I’ve never been more certain, if the commercial bankers are given the sovereign right to create legal tender, then the DFIs must be severely circumscribed in the management of both their assets and their liabilities.
Contrary to Selgin, banks don’t lend deposits. Deposits are the result of lending. Thus, banks can’t attract outside savings to fund their assets. All bank-held savings originate in the system, shifted from previously created deposits. I.e., bank lending is determined by monetary policy, not the savings practices of the nonbank public.
The deregulation of interest rates has caused a consolidation of the banks. Section 11(b) of the Banking Act of 1933 should never have been amended. And it was amended due to the American Banker Association’s politics, a partisan group.
steve
May 24 2023 at 11:41am
I think the Rogoff and Rinehart book suggests otherwise. Money is a great incentive and the incentives of bankers are much different than the banks. Also, the rewards are very large and our laws protect the officers of corporations. In general the worst that can happen is they get fired, after making millions.
Steve
Scott Sumner
May 24 2023 at 12:13pm
Our regulations encourage the risk-taking. That’s why we need to deregulate, so that they bear more of the cost of their errors.
steve
May 24 2023 at 5:13pm
Just being in a corporation mitigates most of the risks for the executive. Bank might be ruined but the executives would do well. If you are advocating for doing away with he legal protections afforded executives by a corporation then I think that could resolve some of this.
Steve
David Seltzer
May 23 2023 at 5:34pm
The complexity of of reality is far to great for one mind to grasp. I remember a physics lecture in undergrad. A student asked the instructor how to solve for a very difficult non-linear process. The instructor said to use a tried and true method known as SWAG. You know, scientific wild-ass guess. Years later I used that approach managing portfolio risk.
john hare
May 23 2023 at 5:38pm
One of my dysfunctions is that I’m an inventor. One of the most important things to know when developing something new is that the first several attempts are more likely learning experiences than successful ones.
Learning to not beat yourself up over stupid (in hindsight) mistakes is a very necessary skill as well. You have to go in knowing that you don’t know for sure. Many people can’t understand that at all. Long since lost track of the number of people that think an idea is ready to go right out of the box, and that I should drop everything to pursue that. But being that I like eating regular and sleeping indoors….
bill
May 23 2023 at 8:33pm
I still hear pets.com dismissed as absurd even though chewy.com has since been a big success.
Monte
May 24 2023 at 2:57am
Tactically speaking, if you were given command of an opposing force of equal strength and experience and applied what you read, I’d give you fair odds. But just as important is your ability to adapt, improvise, and overcome unforeseen obstacles. The rest is left to chance and providence. Victory is a culmination of these things. I believe the same is true of all the other areas of life you mention.
Most knowledge is gained through experience, but past performance is no guarantee of future results. All we can hope to do is retrodict, backtest, and reverse engineer to success. As Soren Kierkegaard observed:
Grand Rapids Mike
May 27 2023 at 8:55am
It is important to recognize that there is no one tried and true approach to a lot of things. One needs to recognize the situation and make adjustments. Adjustments are hard to do if you are locked in to one way of thinking.
As an example look at Sears, at one time a retail giant with a big catalog operation. Along comes Amazon and they destroy them. Sears if they had been able to recognize the situation could have out Amazoned, Amazon but they could not adjust. They were stuck with an outdated way of thinking, sunk cost, of the retail business, that didn’t allow them to make adjustments.
As another example, adjustments are key in sports. How many times after halftime after being behind big on the first half have team come back to win or compete to make a game close.
spencer
May 24 2023 at 9:52am
re: “We have a major banking crisis in 2008 because lots of commercial loans went bad.”
No, Bernanke “did it again”. Bernanke turned otherwise safe assets into impaired assets. Bernanke lowered American Yale Professor Irving Fisher’s “price level”.
Contrary to Greenspan, “the historical relationships between money and income and between money and the price level had [not] largely broken down.”
Contrary to mainstream economic theory, the monetary base was reflected by required reserves. The currency component was contractionary. And the holdings of vault cash was prudential.
link: Bank Reserves and Loans: The Fed Is Pushing On A String” – Charles Hugh Smith
Bank Reserves And Loans: The Fed Is Pushing On A String | Investing.com
Knut P. Heen
May 24 2023 at 10:54am
Many of the areas you mention are areas in which game theory is relevant (war, sports, business, even relationships). There is no recipe for success in such games. The best strategy depends on the opponent’s choice of strategy. Sacrificing your queen in chess sometimes lead to a forced check-mate, but sacrificing your queen is not a general recipe for success in chess.
Nick
May 24 2023 at 6:15pm
And before Trump there was Eisenhower, whose speech could be so convoluted that pundits thought he was doing it on purpose. And let’s not forget, after Trump there is Biden, whose speech is so garbled that one runs out of adjectives describing it, to say nothing of the thoughts that might be behind it.
Scott Sumner
May 26 2023 at 7:07pm
Those are bad comparisons. What makes Trump unusual is that he says outrageous things, not that he’s inarticulate.
Thomas Strenge
May 24 2023 at 9:04pm
The world is full of mysteries. The matter of timing is huge. You have to have the right answer at the right time and the right circumstances. All you can do is put the odds in your favor, but you can still be wrong. I think that’s why principles matter. Over the long run, they are proven correct.
John S
May 25 2023 at 2:30pm
“The older I get, the less convinced I am by the conventional wisdom of sports commentators.”It’s pretty obvious that most commentators are hired for their willingness to say outrageous things and to drive ratings/web traffic (e.g. Stephen A. Smith). Personal connections must also play a role — I have no idea why Mark Jackson still has a job, since he’s boring and clearly doesn’t even pay attention to the league (he didn’t even list Jokic on his MVP ballot). Check out the Thinking Basketball or Dunc’d On podcasts for thoughtful analysis.https://player.fm/series/thinking-basketball
[Off-topic: I’d say the conventional wisdom about needing a big man isn’t exactly wrong. Most of the successful playoff teams of the last few years have had good/great rim protectors: Davis, Draymond (short but has long arms and great rim prot stats), Giannis/Lopez, Adebayo, Rob Williams last year. It’s mostly the one-dimensional big men who struggle, e.g. Gobert (although to be fair the Jazz’s perimeter defense was generally awful). If you don’t have a good rim protector, you’d better have an all-galaxy offense like the Nuggets.]]Re: your larger point (“does anyone know anything?”) — I’d say within each field, as you climb the mountain the quality of discourse almost always improves and you’ll find smart people saying sensible things. But for laypeople, the biggest problem is that the qualities of “useful analysis” and “self-promotion” often don’t coincide in the same analyst, so the loudest voices tend to be those of hucksters and gurus. (Check out the most popular videos on YouTube on nearly any topic, e.g. nutrition.)”I’m increasingly of the view that all of us overestimate how well we understand the world.”This has been my mantra for about the last 10 years, mainly due to how the internet has given me unprecedented access into how other people think. I’m convinced that nearly all useful intelligence is very domain-specific, and just about everyone’s opinions about “the world” are close to worthless (including my own).
Jon
May 25 2023 at 8:12pm
Strategy in war?
You know, Sun Tzu did not say that you win by maneuver alone. He said, translated, “If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
Seems about right.
diz
May 30 2023 at 2:19pm
The idea that the sports world confuses random variation with “clutchness” or lack thereof has been around for a while. I remember reading Bill James abstracts back in the 1980s where he used fairly basic statistical methods to debunk all sorts of sports mythology.