The Age of the Unthinkable (8 page)

One of the lessons of international finance is that from time to time large economic storms come along and wipe out huge pieces
of the global economy. And our modern trading systems often seem to be self-fulfilling disaster machines in this regard. “The
problem with global financial markets,” Larry Summers mused to me at the height of the 1997 Asian economic crisis, “is that
they are like modern jet planes. They get you where you need to go faster, but the crashes are far, far worse.” This was what
happened to some degree in the 1987 U.S. stock market crash, when an accumulation of small factors led to a sudden systemic
change that tore up years of market value. It happened again during the Asian crisis that in 1997 and 1998 lopped Browder’s
fund by 75 percent. In each case the markets had simply become unglued from any normal rules of behavior, had gone “nonlinear,”
as the hedge-fund jockeys liked to say. None of the tools used to predict or explain what was happening worked. With no better
reason than that
everyone else is getting out,
investors dumped and ran. “In crises like this,” Browder said, “people sell first and ask questions later.” Sometimes these
ripples of unknowable economic physics hit only a few innocent bystanders — the arrogant yuppies tagged by the 1987 crash,
a poorly educated Mexican treasury hit in 1995, the random unlucky Thai real estate developer nailed in 1998. But every once
in a while the physics come along and munch away decades of civilized life, the way the 1929 stock market crash tightened
Europe’s downward economic spiral, helping to elevate Hitler and the whole horrible historical train wreck that came afterward.
Looking at what was happening in 2007 and then into 2008, Browder asked himself,
Is this another one of those historic crises?

A unique kind of panic emerges at such moments. If you went to one of the hastily called meetings in the wood-paneled rooms
of the Council on Foreign Relations or if you sat with the best financial minds in the City in London or at a Starbucks in
Greenwich, you could see a strange and creeping fear. It was weird in a way, because these were investors who had made fortunes
from instability and volatility in markets. They had devised instruments to capture and contain and profit from it. Even to
encourage
it. But when what they thought of as the usual rules didn’t apply, they became, very quickly, like Greenspan in his fall
2008 congressional testimony: humbled, perplexed, and worried.

Browder never made a decision without thinking about the downside — not just once but constantly. He knew this was the only
safe approach in markets that could, like one of Bak’s sandpiles, collapse under the pressure of a pin. Change in such a system
would come fast and would be merciless to anyone who was not flexible and prepared. What Browder saw in 2007 was that the
real dynamics of the world were about to assert themselves.

By the time most of the planet understood what Browder had realized on that summer morning, however, thirteen crucial months
had passed.

Our world, whether we are looking at financial markets or nuclear proliferation, now resembles Bak’s sandpiles in many nervous-making
ways. To begin with, it is defined by the two explosive bits of physics that interested him most: increasing numbers of players
and connections between them. If you’d like, you can think of these two effects as
granularity —
the unstoppable tumbling of fresh grains of sand onto our pile — and
interdependence —
the surprising connections that link one part of the pile with another. But what matters is that these two effects represent
a revolutionary change in the physics of power, a change that has to inform every strategy or policy we make from now on.
When Bak described the “tendency of large systems to evolve into a poised ‘critical’ state, way out of balance, where minor
disturbances may lead to events, called avalanches, of all sizes,” he could have been speaking about the Middle East, relations
between the United States and China, the oil market, disease, nuclear proliferation, cyberwarfare or a dozen other problems
of global affairs and security. Every day now, new players and forces are trickling onto the pile of our world order as if
they were dropping from a beaker in Held’s lab: viruses, NGOs, new inventions, Indian peasants moving to cities. And these
are all connected one to another by ties of contact and technology that we can’t fully map or monitor. What is true for Bak’s
piles is true for our world now. We are, in many ways, organized into instability.

This dynamic sandpile energy demands that we accept the basic unpredictability of the global order — one of those intellectual
leaps that sounds simple but that immediately junks a great deal of traditional thinking. It also produces (or should produce)
a profound psychological shift in what we can and can’t expect from the world. Constant surprise and new ideas? Yes. Stable
political order, less complexity, the survival of institutions built for an older world? No. Recall that Morgenthau’s entire
calculus of power was based on being able to measure who stood where, who did or did not pick up the hat. But in a fast-changing
revolutionary world, you can’t map power so easily. Writing about a similar transformation in his field, the economist Brian
Arthur explained it this way: “In the standard view of the economy, which has an intellectual lineage that goes back to the
Enlightenment, the economy is mechanistic. It is complicated but can be viewed as a series of objects and linkages between
them. Subject and object — agents and the economy they perform in — can be neatly separated.” But in a complex order, Arthur
explains, “subject and object cannot be neatly separated. And so the economy shows behavior that we can best describe as organic,
rather than mechanistic. It is not a well-ordered, gigantic machine. It is organic. At all levels it contains pockets of indeterminacy.”
This new physics demolishes the idea that somehow we can use simpler, older tools to manage the international political or
financial system toward a stable equilibrium. But it doesn’t mean complete chaos either.

Complex systems are not incomprehensible. If complexity were unmanageable and simply reduced to chaos in the end, we would
have no Internet, no organized healthy ecosystems, no functioning immune systems or financial markets. In a summary of his
study of various complex systems, the ecologist C. S. Holling identified dozens of systems capable of managing the demands
of a changing environment with surprising ease: wild grasslands, futures markets, entrepreneurial businesses. All of these
systems are confronted constantly with unsuspected risk, but each has found ways to thrive. More worrisome, however, Holling
and a team of mathematicians and biologists also found examples of the opposite sorts of systems, filled with what he called
a “perverse resilience,” that insisted on preserving bad ideas. In such “maladaptive systems,” Holling explained, “any novelty
is either smothered or its inventor ejected. It would represent a rigidity trap.” Such systems might look good for a while,
but when they are hit with the unexpected, they react in ways that doom them. They simply can’t shed their wrong ideas fast
enough. Sound familiar?

Once, a few years after he first proposed the idea of a sandpile experiment, Per Bak was having dinner at Churchill College,
Cambridge, with a group of British scientists. Something about the setting, all the formality and the stiff necks, brought
out the American side of Bak that delighted and bewildered his fellow Danes. A few glasses of wine into dinner, his contempt
for the “big science” he saw around the table began to slip out. Bak liked to observe that multibillion-dollar science programs
almost never produced meaningful discoveries. They were cash furnaces. Nobel Prizes were won by scientists who had made extraordinary
breakthroughs by themselves or working in teams of two. Big universities, where conservative and riskless views of the world
were the norm, where the future of mankind always seemed to be one more billion-dollar atom smasher away, set Bak’s teeth
on edge. Science, in his mind, was about taking a hammer to the glass walls of old, wrong ideas. Here at dinner he had a sense
of a group of guys who spent their time polishing those glass walls.

Bak popped. “Why is it that you guys are so conservative in your views, in the face of the almost complete lack of understanding
of what is going on in your field?” he asked. To Bak, the fact that science still explained so little demanded constant radicalism,
the sort of creative imagining that has inspired great scientific leaps throughout history. In intellectual terms, he felt,
the constipation of a place like this couldn’t possibly be justified when there was still so much amazing science left to
do. The Cambridge scientists responded that they didn’t see another choice. “If we don’t accept
some
common picture,” they said, “there would be nothing to bind us together as a scientific community.” Bak was astonished. The
explanation for this shared wrong view — you had to call it a
delusion,
really — was social rather than factual. People agreed because they wanted to be part of the community more than they wanted
to be right. It was a situation you could find echoed around the world in foreign policy or finance in 2008: a set of shared,
wrong ideas, clung to loyally by people who couldn’t quite see past their illusions or the imagination-killing need to agree
and fit in. Bak knew that if you wanted to truly understand the world, these commonly held ideas were absolutely blinding.
But he had seen what his revolution in thinking was already making possible. He was just one guy in a lab, the Cambridge dons
chided him. But those were the sorts of guys, Bak knew, who made history.

I have sat with him before and the eyes remain the same as ever — lucid, clear, a bit soft. His head nods now at times, just
slightly. Mortality’s creep. But the famous face is unchanged, its strong lines as unforgettable as when they graced television
sets and magazine covers. He has a way of listening, cocking his head forward like a curious bull, that bespeaks a funny mixture
of impatience and decency, a polite urgency that can set you off again on all the old debates in your mind. What was it that
in the end did him in? The politeness? The urgency? Both? At home I have a photograph of him that I once asked him to sign.
It shows him, hat in hand and bundled in an overcoat, standing calf-deep in snow in a barren pine forest near his house. You
can see the footprints in the snow that lead to where he stands. The immensity of the forest makes him appear small and human,
a scale that is unusual for him, a man usually presented as so much larger. Still, he looks comfortable in this awkward position.
He was always that: a man who could deal gracefully with the uncomfortable. The portrait of him alone in the snow tells a
great deal.

We are sitting quietly now, the easy topics exhausted — his health, recent travels, what we have read and are thinking about.
I recall our last meeting; he discusses his decision to slow down his travels. But these are small matters. I have sat with
him before, but one question, the one I most want to ask, I have never raised directly. I have read what he has written on
the subject, pages of justifications and explanations. How even to ask it? What causes a nation to crumble? What does it feel
like to have 250 million lives and hopes run through your fingers like so much wheat? I take a sip of tea, look at him directly.
I ask: “As you look back on it now, why did it unravel?” He shifts in his chair, rubs his hand across his face, fingers his
water glass, and smiles. Then, slowly, Mikhail Gorbachev begins his answer.

The end of the Soviet Union was one of those sandpile avalanches that, like the 1929 stock market collapse, demanded a complete
remapping of the world. Its collapse was a permanent modification to the landscape of power. At the time, the Soviet Union
was one of two centers of global power. The country’s scientists and engineers were among the best on earth; its artists and
musicians were celebrated overseas; its military was the closest match on the planet for the forces of the United States.
The USSR put men and women in space, gave billions in aid to other countries, had a philosophy of politics and a dream of
society that had seduced men as different as Nelson Mandela and Fidel Castro. And then, in a historical instant, the whole
ornate system was simply gone. It was, in short, Per Bak in Red Square.

The Cold War had to end someday, of course. But how? Nuclear holocaust? Truce? And when? These questions had been pondered
at the cost of billions of dollars. They had underpinned the careers of generals, spies, economists, and diplomats, consumed
entire lifetimes in hurried conferences, secret briefings, cables and photos and leaks scrutinized for meaningful hints. In
a rather pointed “ahem” directed at his own profession, the Yale historian and political scientist John Lewis Gaddis once
observed that the end of the Cold War “was of such importance that no approach to the study of international relations claiming
both foresight and competence should have failed to see it coming. None actually did so, though.” And it wasn’t just the Ph.D.s
who missed the clues. All those generals, all those spies, all those diplomats — they were just as blind.

Why, twenty years after the USSR split open in front of its astonished audience like some clever magic trick, do we really
care what happened? Isn’t it enough to have seen the trick at work, to have watched how, under some sort of historical pressure,
the collective apparatus that ordered the lives of millions simply sighed, split, died, and baffled the experts? Maybe. But
the collapse of the USSR is useful for us too as a study of how the wrong way of seeing can hide the real dynamics of the
world, why the end of the USSR stunned the same minds who would later be stunned by 9/11 or the financial collapse of 2008
and who, I assure you, will be stunned again before long. The USSR was — as Gorbachev himself may have been shocked to discover
— one of those poised critical systems that Bak described. It was organized into instability. Of course, when the Soviet Union
tumbled, there were naturally a few theories about
why
it tumbled (inked out, of course, by the same folks who had missed the collapse in the first place). But few of these theories,
and none of the ones that became most popular, accepted the real and, for us,
useful
sorts of lessons a more complex way of looking at the world really suggested. Before we can move on to addressing the main
problem of this book, which is about how we can best navigate an increasingly complex international order, we need to clear
up an important question that remains unanswered: why, despite our overwhelming material and military superiority over the
rest of the world, do we still have this creeping and evidently justified sensation of insecurity? My argument so far has
been that it is because many of our best minds, blinded by optimism and confusion, are using out-of-date and unrealistic models
of the world. This is why our uneasiness about resting our future in their hands is inevitable. Despite their good intentions,
most of our foreign-policy thinkers today resemble students who arrive to take a test that is composed in a language they
do not speak.