Weekly Geopolitical Report – Using History (September 25, 2017)

by Bill O’Grady

Geopolitics is the study of the exercise of power within a specific geographic area.  Geopolitical analysis is a multi-disciplined examination that starts with geography and includes economics, sociology and, of course, history.  Geopolitics is generally used for two purposes.  First, it offers a multi-faceted way of looking at how nations behave.  Second, it may be able to offer insights into future behavior.

Although all of the above disciplines offer insights into geopolitical analysis, for prediction purposes, history can, in many respects, offer the most concrete path of future behavior.  After all, history can tell us what happened when a nation faced a problem.

However, there is a particular problem with history.  The successful use of a historical analog requires selecting one that has the best fit to the current situation.  Because historical events are specific, especially compared to the more general theories from the social sciences, selecting an inappropriate historical analog can be seriously misleading.  Behavioral economics has a concept called “anchoring,” which means that a certain idea colors a person’s ability to analyze a situation.  For example, if investors become accustomed to a certain interest rate and assume it is normal, then investors may be slow to act when rates change because the original rate acts as an anchor.  In other words, an anchor is considered what is normal and where rates should return.  The presence of an anchor in investors’ minds can blind them to changes in conditions that may support an interest rate different than the anchor.

History isn’t a science; there isn’t a theoretical construct in history that is usually available from social sciences.  Thus, there is no generalized method to inform analysts on the proper way to select a historical analog.  However, picking a good analog is critical because of the problem of anchoring.  An analyst that uses an inappropriate analog can find himself “trapped” by that historical parallel and thus miss differences that may lead to mistakes.

Although history will never be a science, there is a working model for analyzing historical parallels.  Richard Neustadt and Ernest May wrote a working handbook[1] for practitioners and policymakers to analyze history and pick an effective analog.  We will begin by offering a brief discussion of Neustadt and May’s methodology.  To show how it is used, we will compare the current superpower uncertainty to three historical analogies using this book’s structure.  As always, we will conclude with market ramifications.

View the full report

[1] Neustadt, R. E. and May, E. R. (1986). Thinking in Time: The Uses of History for Decision Makers. New York, NY: The Free Press.