Impossible vs Unprecedented

The Red Queen had exactly the right approach. To Alice’s claim that ” There’s no use trying, one can’t believe impossible things”, the Red Queen responded “I daresay you haven’t had much practice. When I was your age, I always did it for half-an-hour a day. Why, sometimes I’ve believed six impossible things before breakfast”.

We have the dubious privilege of living in a period in which unprecedented things happen virtually every day. The most striking unprecedented event of recent days was, obviously, the election of the first African-American president in the US. The day before, General Motors and other car manufacturers announced the sharpest drop in car sales since WW2 and, in population-adjusted terms, the largest fall ever. Virtually every day this week, indicators of economic activity from countries around the world have recorded the sharpest falls ever measured. Yesterday, the Bank of England cut interest rates by 1.5 percent, the sharpest cut ever made by the Bank since it became independent in 1997; interest rates in the US and UK are likely to soon be at their lowest levels in modern times, perhaps ever.

All of these developments would have been considered ‘impossible’ until recently. Anyone predicting them – any of them – last November would have been widely regarded as weird. But why? They are all perfectly logical, when seen as part of a continuum. After black congressmen, mayors, senators, generals and ministers, it didn’t require a massive leap of the imagination to envisage a black president. GM has been in decline for decades and in a terminal state for years. Adding a sharp recession to that trend leads inevitably to a disastrous slump in sales and looming bankruptcy. Anyone following the global financial crisis and its development into a severe economic slump could figure out that dramatic measures would be taken – after all, so many have been already, so why not more? Yet not a single mainstream analyst ventured to suggest that the Old Lady of Threadneedle Street would cut by so much: the consensus was for 0.5%, many thought that 0.75% was probable and some urged the Bank to cut 1% — but didn’t really believe that could or would happen.

Throughout the credit crisis and financial disaster that has been underway since July 2007, the mainstream economists, bankers and brokers have stuck doggedly to the supposedly solid ground of what they know, what they were taught and what they are used to. The ideas of Nassim Taleb — he of the ‘Black Swan’ type of low-probability, high-impact events that the theoretical models consider to be impossible but actually happen frequently – are not only unknown to them, but actually indigestible. At every stage of the ongoing slump, they are engaged in frantic efforts to mentally adjust to a situation in which virtually everything is unprecedented, at least in their experience. It is, therefore, not surprising that they – and by extension, their clients – are shocked to the point of mental numbness. Their desperate hope is that things will soon return to what they regard as normal. The thought that what used to be normal will not be seen again for years, if ever, is something that they literally cannot contemplate.

Yet for those who wish to survive, financially and probably in much wider senses too, there is no choice but to accept that we are in a new reality which, from the vantage point of the pre-crisis world is a Looking Glass World. Practice thinking for half an hour a day about things you consider to be impossible. Try and persuade yourself that they could happen. Many of them already have, many others probably will. Then try and distinguish between the impossible and the unprecedented, because many of the supposedly impossible things are merely unprecedented – like a black president and General Motors going bankrupt.

Finally, think carefully about supposedly unprecedented events and trends, because in most cases there are precedents, whether they occurred decades or centuries ago, in other countries and cultures. In the social sciences, which include politics and economics, and which Ecclesiastes seemed to know pretty well, there really is nothing new under the sun – although, as he noted, there are always people saying “behold, this is new”. But it is only new to them, and that is not a valid reason for declaring it impossible and refusing to accept that it can, and probably will, happen.

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