Using History

Using History

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 handbook1 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.

Analyzing History

The aforementioned authors were professors at the Kennedy School of Government at Harvard University. They taught classes to government professionals who usually became aides and assistants to cabinet level officials. The goal of their class was to teach these officials how to use history in a systematic manner to help policymakers make better decisions using history. The authors were very concerned that these professionals use appropriate historical analogies; they worried that using an improper one would frame the analog in such a way that it could distort decisions and lead to mistakes.

At the same time, Neustadt and May realized that history didn’t offer a structure for deciding the appropriateness of a historical parallel. Thus, they decided to build their own “cookbook” to help officials select the best analog. Their method isn’t statistically tested; in fact, it probably can’t be. But, it does offer a structure that is probably better than merely attaching to an analog without thought.

Their method begins by looking at a particular issue and separating out three factors—what is known, what is unclear and what is presumed. What is known is purely factual. What is unclear is if uncertainty exists around how other parties will react to a policy change or if another party will change behavior in light of a policy change. What is presumed is very important. These are assumptions that the policymaker believes are true or may have been a motivating factor in a certain behavior. These presumptions may or may not be correct but every decision-maker has them and they are most dangerous when they are unexamined.