AI Summary #
The host of the podcast emphasizes that understanding history is more important than predicting future events. He suggests focusing on behaviors that never change, such as human nature, rather than trying to predict changes in markets or industries. The common denominator behind these unchanging behaviors is that people tend to create simplistic and comforting narratives about the world, which can lead to unrealistic expectations.
The host highlights four key points:
- Illusion of invincibility: People often believe that they are immune to events like pandemics, economic downturns, or personal failures. However, this illusion is based on a false assumption that their experiences and circumstances are unique, making it difficult for them to understand the likelihood of similar events occurring in their own lives.
- Overestimation of perfection: Many people believe that they can achieve success and happiness with minimal effort and no setbacks. In reality, everything comes with overhead costs, such as stress, doubt, and uncertainty, which must be acknowledged and paid for.
- Failure to learn from others’ experiences: The next generation often fails to learn lessons from previous generations because they do not have personal experiences that match those of their predecessors. This can lead to a lack of understanding and empathy for different perspectives and challenges.
- Stationarity vs. change: The assumption that history is a reliable guide to the future is flawed, as events that have never happened before often change the world. Instead, we should focus on studying and learning from historical changes rather than relying solely on past data.
The host concludes by emphasizing the importance of being aware of these common pitfalls and developing a more nuanced understanding of the world. He encourages listeners to be open-minded and empathetic, considering different perspectives and experiences that may shape their views on risk, greed, and fear.
AI Transcription #
I’m going to keep running with the theme that I’ve used many times on this podcast and was my most recent book, which is just the overall belief that it is far more important to find things in history that don’t change.
It’s more important than it is to think about what might possibly change in our future going forward.
It’s based off this idea that I’ve had and that I’ve noticed over my career that markets change, but greed and fear never do.
And industries change, but ambition and complacency don’t.
Those change, regulations change, but the tribal instincts of politics do not change.
So my deepest forecasting belief is that you can better understand the future.
If you focus on the behaviors that never change, instead of the events that might change.
And those behaviors always have a common denominator.
And that’s what today’s episode is about.
What’s to that common denominator is that the behaviors that don’t change follow the path of least resistance of people trying to simplify a complex world into a few stories that make sense and make them feel good about themselves.
That’s a really important part.
People like simple stories and they like feel good stories.
Stories that are easy to understand and make them feel really good about their position in the world.
Stories are some of history’s most seductive beliefs.
And I think they always will be.
So let me share with you a few of them that tend to stick out.
All right, number one.
Having an illusion that other people’s bad circumstances could not also happen to you.
Most of history is slow progress amid constant bad news and occasionally terrible news.
And a very seductive story when hearing about tragedy is to believe that this awful thing happened to that person or to that company or to that nation.
But it could not happen to me.
It could not happen to my company or to my country.
And you might be right about that.
Your country might be more stable than the one that collapsed.
Your business might be more durable than the one that went bankrupt.
And your health might be better than the person who was recently diagnosed with some terrible disease.
The problem is that people don’t like to think in probabilities.
It is so much easier to think about risk as just black and white.
It either will or it won’t happen to you.
So rather than thinking that your business has a 10% chance of failure, it’s easier to think about what happened to seers and Lehman brothers and to assume that that could never happen to you.
So before 2008, you didn’t think that there was a 5% chance of a banking collapse in America.
You just looked at what had been happening in Latin America for decades, all the banking crisis that they had, and you probably thought that could never happen here in America.
Until it did.
More recently, in early 2020, you probably did not look at what was happening in Wuhan, China.
And think, oh, there’s a chance that that might happen here in America, in my own country.
You looked at the lockdowns and you thought there’s no way that could ever happen here.
That’s happening to those poor folks, but that could never happen here.
And then it did.
You couldn’t even fathom it happening here.
It was easier to think about it just saying, oh, that’s somebody else’s problem, but that would never happen here.
And then it does.
So when you go through life thinking that low probability events are zero probability events, you are bound to get stuck in an illusion that what happened to somebody else could not also happen to you.
This is especially true when you add up the low odds of lots of different unfortunate events.
So if in the next year, there is a 1% chance of a new pandemic and a 1% chance of a crippling economic recession and a 1% chance of a catastrophic flood, 1% chance of a big political collapse and on and on and on, then the odds that something that one of those things will happen next year are pretty good.
It’s like that saying history is just one damn thing after another.
Like if there is a 1% chance of 50 different bad things happening in every given year, what of them is probably going to happen every couple of years, right?
Several years ago, I interviewed Yale economist Robert Schiller and he talked about the possibility, not quite the forecast, that home prices could fall, adjusted for inflation, for a decade or longer.
They’re getting for a generation that you buy a house today and a generation from now, it’s worth less than it was when you paid for it.
And I asked him why he thought that or how you think that could possibly happen.
And he said, quote, well, it happened before.
Real home prices fell for most of the 20th century.
If you look at the 1950s and 1960s and 1970s, adjusted for inflation, they went down.
So of course, Robert Schiller said it could happen again, even if it seems crazy.
All right, number two, you imagine an unrealistic world where progress and success don’t demand a fee and a belief that hassle and nonsense and disagreement and uncertainty are bugs rather than an unavoidable cost of admission to getting ahead.
Jeff Bezos once talked about the realities of loving your job.
This is such a good quote.
He said quote, if you can get your work life to where you enjoy half of it, that is amazing.
Very few people ever achieve that because the truth is everything comes with overhead.
That’s reality.
Everything comes with pieces that you don’t like.
You can become a Supreme Court justice and there’s still going to be pieces of your job that you don’t like.
You can be a university professor and you will still have to go to committee meetings.
Every job comes with pieces that you don’t like and we need to say that’s just part of it.
Very smart quote, I love it.
It’s just part of it as he said, it’s part of everything.
His advice there from Bezos applies to so much more than your careers as well.
A simple rule that’s obvious but easy to ignore is that nothing worth pursuing in life is free.
How could it be any different?
Everything has a price and the price is usually proportionate to the potential rewards.
But those prices are almost never on a price tag.
You don’t pay those prices with cash.
Most things worth pursuing charge their fee in the form of stress and doubt and uncertainty and dealing with weird people, bureaucracy, other people’s conflicting incentives, a hassle, nonsense, maybe what you could just call general bullshit.
That’s the overhead cost of getting ahead.
Look, most of the times that price is worth paying.
But you have to realize it, it’s a price that must be paid.
There are not many coupons in life to get a discount on those prices paid.
So a seductive belief throughout history is people expecting an idealized world where you can demand perfection and assume that having little tolerance for error or variability or disagreement is a virtue.
That is a simple story and it feels good.
It feels good to assume that we should be able to live in a world where everything’s great and it works smoothly and people get along with each other.
I wish that were true, of course.
But it is so at odds with the reality that it leads people never achieving what they wanted to because they’re unwilling to pay the required price.
And they over idealize those whose success was harder than it looks and not as fun as it actually seemed.
Alright, number three.
Having an assumption that your view of the world is the view of the world.
And a belief that what you’ve seen and experienced are the sights and experiences that explain how the world works.
More than a century ago, Harry Truman said quote, The next generation never learns anything from the previous one until it’s brought home with a hammer.
I’ve wondered why the next generation can’t profit from the generation before, but they never do until they get knocked in the head by experience.
Here’s at least one reason why that happens.
No lesson is more persuasive than the one that you have personally experienced.
First hand.
Like you can try to be empathetic and open-minded to other people’s views.
But when you’re trying to figure out how the world works, nothing makes more sense than the unique circumstances of what you’ve lived through first hand.
So of course I have views about politics and different social dynamics.
I have views of the economy.
And I think it’s important for myself and everyone to ask.
Do I believe those things because they’re true?
Or because they make the most sense given the life that I’ve happened to live?
In this generation, in this country, born to my parents?
Is it true or does it just make sense given what I’ve seen?
The idea that you have never experienced 99.99% of what has actually happened in the world is very hard to swallow because it’s intimidating to admit how little you know or how little you’ve seen in the world.
A much more comforting story is to convince yourself that what you’ve experienced is the story of how the world works.
This is how your career went so that’s how economics works.
These policies benefited you so that’s how politics work.
You think that what you’ve seen is a reflection of how the world works.
And what belief could be more seductive than that?
But given how oblivious everybody is to the majority of experiences, what belief could possibly be more wrong than that?
So everybody goes through life a little bit blind to the lessons that have already been learned by other people.
And this goes well beyond generations.
There are massive experience gaps between different nations, different socioeconomic classes, different races, industries, religions, educations, on and on and on.
So the person who grew up in poverty thinks about risk and reward in ways that the child of a wealthy banker cannot even fathom, even if he tried.
The person who grew up when inflation was high is scared of inflation in a way that the person who grew up with stable prices just isn’t.
And when you go through these issues, it leads to all kinds of different disparities.
One is that we are constantly surprised by events that have been happening forever.
One other is that it’s hard to distinguish people who have experienced something you haven’t from people who aren’t smart enough to understand your own experiences.
A third is that topics like risk, and greed, and fear are not the kind of things that we can learn about and master as a society like we did say agriculture.
As my friend Michael Batnik says, some lessons have to be experienced firsthand before they can be understood.
And every generation has to learn on its own over and over again.
Both the question, why don’t you agree with me?
Can have infinite answers.
But usually, most of the time, a better question to ask in life is, what have you experienced that I haven’t that would make you believe what you do?
And would I think the same thing if I had experienced what you have?
Alright, number four.
Last one.
The assumption that history is a guide to the future and that things will continue working as they did in the past.
There was once a $45 million damn built in Colorado that was designed to prevent flooding.
And it turned out to not really be needed at all because the river that it blocked slowed to a trickle.
Just due to climate change, it just didn’t have the same precipitation that it did for the previous hundred or so years that whose history was used to forecast the need of this damn.
In Rotterdam, the opposite once occurred.
A damn needs to be replaced a quarter of a century sooner than once estimated because it is under unprecedented stress.
This is Journalist’s name, Shayla Love, who once explained the common denominator of what happens here.
I’m going to read you what she wrote, she said quote, stationarity is the idea that statistically the past can help you predict and plan for the future.
That the variations in climate and water flow and temperature and storm severity have remained and will remain stationary or constant.
Nearly all the infrastructure decisions with which we have have been made with the assumption of stationarity.
Brids make choices about stormwater drainage pipes based off of past data of inches of rain.
Bridge engineers design foundations that can withstand a certain intensity of water flow based on the severity a certain location has experienced in the past.
Back to me, that’s what I’m done with her quote, a very seductive belief that exists in almost every field is that things will keep operating like they always have.
It’s almost a necessary belief to have in a world where you have to base your prediction off of something.
But as Stanford professors got say in once said, things that have never happened before happen all the time.
All the time they keep happening in fact in most fields, especially business and investing.
The most important events that changed everything and determined the majority of future outcomes are things that had never happened until they did.
The most important economic events of the last century are probably the Great Depression, World War II, the 40 year collapse in interest rates and maybe globalization.
And while each of those had some sort of ancestors that you could point to that were somewhat analogous.
Anyone predicting what those events eventually did to the world could be brushed aside by those who pointed out say that negative interest rates had never happened before.
A nationwide housing bubble and bust had never happened before.
A weapon like the atomic bomb that could deter future wars had never happened before.
And then all those things did happen and they totally changed the world.
So all history is a study of what has changed.
It’s a study of change but is often used as a guide to the future.
And that irony is easy to overlook.
Because the idea that if we gather enough data and read enough history books will acquire a map of the future is so seductive.
It’s so simple and it makes you feel so great.
And that will never change.
That’s it for this episode.
This episode was brought to you by my friends at public.com and their podcasts The Run Down, which is a very short podcast talking about what’s happened in the world financially in the economy and the stock market.
Check out The Run Down by public.com.
And thanks again for being here.
We’ll see you next time.