Niall Ferguson Says We’re Getting Worse at Dealing with Catastrophes (but he’s wrong)

How we’re winning

I credit technology and increasing wealth: we have weather satellites, seismic detectors, and many other tools that our forebears did not. We can flee from danger in fast cars and airplanes and in New Orleans, motorboats. Most importantly, we can now build our homes and other structures to withstand natural hazards. Impoverished Haiti suffers most, moderately prosperous Chile much less, and wealthy southern California barely at all from the same-sized earthquake. As wealth and safety-related technology continue to grow, we will become even better protected from natural disasters.

We also have antibiotics and vaccines to defend us from our bitterest enemies, bacteria and viruses. Viral immunization first came to Europe around 1700, the first antibiotic around 1900, and were very primitive.² Before that, either your immune system made you better, or you died. Contra Ferguson, we are getting better, not worse, at protecting ourselves from catastrophe. The growing population – and growing concentration of population in cities – sometimes gives the illusion that disasters are getting worse over time.

They’re not.

The idea that disasters are increasing because too many people are in the way of natural forces reminds me of the naturalist Edward Abbey’s ugly comment, often echoed by others including the usually admirable David Attenborough, that “growth for the sake of growth is the ideology of the cancer cell.”³ He was talking about human populations. I’m not a cancer cell but a valuable contributor to the human and non-human drama. So is everybody else.

Structure of the book and of this review

The structure of the book is unconventional and helpful. It’s thematic, instead of being organized chronologically like many history books. This helps readers figure out what they’re interested in and focus on it, instead of plowing through the whole thing to get to what they consider the good parts. The themes include our changing relationship to death, how network effects spread disaster, the fractal geometry of catastrophe, the geopolitics of COVID, and the risks of totalitarianism in the pursuit of safety. Doom is not quite competitive with the best science writing; there is something vaguely unsatisfying about it. Yet it is a richly informative and thoughtful book that I heartily recommend.

To collapse this long and complex book into a readable review that is relevant to investors, I now focus on two sections:

• “Gray Rhinos, Black Swans, and Dragon Kings,” a meditation on risk that is of great potential interest to investors; and
• the chapters on COVID.

A note on style

This book is meant for the well-read. I don’t know if Ferguson is just showing off or believes that readers will understand his many literary allusions, but in five pages of one chapter (“The Meaning of Death”), Ferguson name-checks the British television character Private James Frazer, John Donne, the painter Salvatore Rosa, Philippe Ariès (unidentified),⁴ Evelyn Waugh, the radical futurist Eliezer Yudkowsky, and King David. Ferguson is nothing if not eclectic!

Mercifully, Ferguson breaks up this long, challenging book with humor. He cites ancient and modern religious texts, including the Book of Revelation, the Bahman Yasht (a text of Zoroastrianism), and Monty Python. Here’s Ferguson’s taste in “doom” jokes, from Beyond the Fringe, the cast of which included Peter Cook and Dudley Moore:

The prophet and his followers compose themselves for the end of the world and count down:

COOK: Five, four, three, two, one – zero!

ALL: (Chanting.) Now is the end – perish the world!

A pause.

COOK: It was GMT, wasn’t it?

Gray rhinos, black swans, and dragon kings

When comprehending the risk of catastrophes, it is vitally important to distinguish them from ordinary bad events that happen all the time. Everybody has their own classification scheme. The best-known is Nassim Taleb’s dichotomous one: A black swan is an event that is so improbable that few people seriously contemplate it. The rise of the Internet, the personal computer, World War I, the dissolution of the Soviet Union, and the September 11 attacks are among Taleb’s examples. All other events are normal and to be expected (whether they happen or not).

Ferguson expands this zoo by adding grey rhinos (you can see one coming from a mile away, if you bother to look) and dragon kings, events that are akin to black swans but whose impact is on a much grander scale. Dragon kings are the brainchild of the French polymath Didier Sornette, who is best known to investors as a risk analyst and asset manager, but who is even better known outside the investment world as a geophysicist and pioneer of the field of earthquake forecasting. Ferguson writes:

…[A] “dragon king” [is] an event so extreme that it lies outside a power-law distribution. He finds examples in six domains: city sizes, acoustic emissions associated with material failure, velocity increments in hydrodynamic turbulence, financial drawdowns, the energies of epileptic seizures in humans and animals, and (possibly) earthquakes. [They] are [quoting Sornette] “statistically and mechanically different from the rest of their smaller siblings.”⁵

I warned you, this is heavy stuff.

Ferguson calls the crash of 2008 a gray rhino – something that is “dangerous, obvious, and highly probable” according to the policy analyst Michele Wucker, who coined the term.⁶ I disagree.⁷ In terms of stock market decline, that’s what it was: a very bad bear market comparable to those of 1973-1974 and 2000-2003. If Ferguson had been on the inside, working in the financial markets, however, he would have seen that it was more serious. Liquidity vanished in a variety of important asset classes. A whole category of financial institutions – independently owned Wall Street investment banks – disappeared after thriving for a couple of centuries. A major index of subprime mortgage-backed securities went to zero.⁸ (When was the last time any asset class went to zero?)

Yet the global financial crisis was not a dragon king. It ended and we recovered, although the era of endless zero interest rates, a reverberating shockwave from it, may turn out to be more damaging than the crisis itself. Furthermore, it did not fundamentally change the way we think about the probability of events, including disastrous ones.

What are the real dragon kings? An asteroid impact would be, clearly, but some more recent human events are too. Ferguson cites the Industrial Revolution as one. (Dragon kings are not always bad, just big.) And, he adds provocatively,

…[D]ragon kings would appear [also] to exist outside the realm of catastrophe. There have been countless holy men and founders of religious cults; only three (Gautama Buddha, Jesus Christ, and Muhammad) founded world religions capable of attracting hundreds of millions of adherents and enduring for centuries.

There have been and still are countless secular political theorists; none has matched Karl Marx in inspiring not only hundreds of millions of believers but also multiple political parties, revolutions, and state, including two of history’s largest, the Soviet Union and the People’s Republic of China…

These outliers seem more like dragon kings than black swans.

Indeed, they do, and Ferguson – with the help of Wucker and Sornette – has enriched our vocabulary for discussing risk.

The COVID conundrum

Trained as a financial historian but now working as a general historian, Ferguson’s perspective on COVID is that of a generalist and thus broader than that of most specialists. He first summarizes the course of the disease and various governments’ reactions to it through the summer of 2020, when his research ended. (The book thus missed the brutal winter 2020-2021 surge, the rapid recovery, and the current threat of the Delta variant.) To interpret what happened, Ferguson then applies his thinking about networks:

The virus spread at the speed of a jet plane through the scale-free network of international passenger airports… How far it spread on board the planes…did not much matter. All that mattered in the first phase…was effective (not geographic) distance from Wuhan.

He explains that, in network terms, Paris, London, Rome, Moscow, San Francisco, and New York are “close” to Wuhan because there are a lot of direct flights from Wuhan to these cities. A rural village in a neighboring province of China is much “farther.” Ferguson continues,

The critical insight of network science was that in order to prevent the spread of the new virus, existing social networks had to be…broken up – especially those that promoted proximity and confined spaces… This should have applied to the elite social links from Westchester to Aspen to Palm Beach. It should also have applied to the tight social networks of the Latino population of Los Angeles or of the Baptist churches of the South… [T]his insight was largely lost on policymakers…

It was not lost on Dr. Charity Dean, one of the subjects of my May 31, 2021 review of Michael Lewis’ The Premonition in Advisor Perspectives. Dean found that the dense housing of Latino workers in southern California was a superspreader situation that emerged early. If we had focused more on such circumstances, and kept a closer eye on inbound international travel, a great deal of medical and economic misery might have been avoided.

By the way, Ferguson does not support a loosey-goosey approach to pandemic control in the interest of a thriving economy. Lifting a line from his Hoover Institution colleague John Cochrane, he accuses the U.S. of a “dumb opening” in the summer of 2020 (which I do not remember – but I live in a big city). And he closely ties the riots and poisoned political atmosphere of 2020 (and, if he had waited to write his book, January 6, 2021 in Washington) to the emotional as well as economic damage done by the pandemic and associated lockdowns.

Costs versus benefits

Ferguson then considers the economics of “non-pharmaceutical interventions” (lockdowns, testing, social distancing, and masks). The conundrum of my section title is: How do we weigh the total costs of an action designed to combat COVID against the total benefits of the action, over an indefinite future of which we have very little foreknowledge?

In a March 23, 2020 Advisor Perspectives article, after acknowledging that we have to stop the pandemic somehow, I raised this concern early:

[W]e know what happens when people are unemployed, bankrupt, or devoid of savings. We’ve seen the morbidity and suicide rates from the impoverished counties of eastern Kentucky and West Virginia… Economists…think about the unintended consequences and unforeseen effects of an action, not just about the immediate results. The human consequences of the current severe economic contraction should be kept in mind when setting policy. We do not want to solve one emergency just to walk blindly into another.

Ferguson comes out in a similar place, but with the benefit of having seen, up to a point, how bad the pandemic might get. (It got much worse after his book was written.) He also had access to data correlating various policies with COVID transmission rates:

…[M]andated social distancing was a far more effective policy than closing businesses and making everyone work from home, including all those who patently could not. Other measures that should have been more widely adopted would have focused on isolating the elderly and otherwise vulnerable populations. The most effective measures, however, were those that quarantined superspreaders and banned superspreader events. A lockdown [i.e. a literal shelter-in-place order] was far too indiscriminate a response to a virus with as low a dispersion factor as that of SARS-CoV-2.

The distinction between “mandated social distancing” and what was done in the U.S. is not obvious. Because Ferguson relegates his explanation to a very long footnote, and because the description in his footnote of the contemplated mandate ranges from mild to draconian, it’s not clear what policies Ferguson favored. It’s evident, however, that he would have balanced medical against economic/social values a little farther on the economic side. He’s a utilitarian.

A Whiggish interpretation of medical history – right or wrong?

In one of Ferguson’s oddest comments, he writes,

The nineteenth century was a time of major advances, especially in bacteriology. But we should not succumb to a Whig interpretation of medical history. Empire…forced the pace of the globalization of the world economy, creating new opportunity for diseases…

He is criticizing a dance of 15 steps forward and one step back. Who would trade 1850s medicine, with no germ theory of disease and little public sanitation, for a world in which tropical diseases are locked away in the tropics? How about medicine in 1800, when surgery was conducted without anesthetics?

A Whig interpretation of history is one in which human life is perceived as improving inexorably over time through the accumulation of knowledge and achievement. That’s debatable overall – although I lean toward favoring it – but in the sciences it’s hard to deny.⁹ If by “medicine” we mean the ability of humans to control their own health in a way that results in comfort and long life, consider this diagram from Doom:

Exhibit 2
Life expectancy at birth, by country, 1868-2015*

*The average number of years a newborn would live if the pattern of mortality in the given year were to stay the same throughout its life. Source: Ferguson, Doom, p. 39. The periodic “crashes” are due to wars, except for the coordinated crash in 1918 caused by the flu pandemic.

A very large proportion of this gain in life expectancy comes from the reduction in child mortality. In advanced societies child mortality has morphed from a dread faced continually by every parent to something approximating background noise. Stephen Jay Gould’s essay, “Shoemaker and Morning Star,” is some of the most heartrending medical history I’ve ever read.¹⁰ It is about dead babies – here in the United States, among people of ordinary means, not much more than a century ago. Matt Ridley and Johan Norberg have also written vividly (too vividly for my taste) about the medical hardships of the relatively recent past. The idea that we are getting worse at dealing with medical catastrophes – generally, not in specific instances – is absurd.

A Whiggish view of non-medical progress

Our progress against non-medical catastrophes is even more dramatic, even if Ferguson is not particularly impressed with it (or is fooled by rising population numbers). When an ancient (about 8,500 years ago) episode of climate change caused the North Sea to rise, turning Doggerland from a well-populated low-lying plain into a shallow sea, the threatened population had to walk to England or Germany or else drown.¹¹ If something similar happened today, and it might in Nauru or the Maldives, we’d move people using ships and airplanes. No one would die, and international aid would help the refugees resettle on higher ground.

The more recent past, say, from 1500 to 1900, was more like Doggerland than Nauru. Many Americans’ European ancestors, facing the Little Ice Age in central Europe, came to the more fertile land of North America in leaky sailing ships that often sank. (This was yet another climate change-induced migration: these have occurred since the beginning of time.) Many whose ships stayed afloat still did not survive the trip.¹²

Nowadays, about 42 million people cross the Atlantic from Europe to the U.S. each year.¹³ The last fatal airplane crash on this nexus of routes was on July 25, 2000, more than two decades ago.

Conclusion

Having spent hundreds of hours getting up to speed in progress studies – in preparation for my 2019 book, Fewer, Richer, Greener, and for other reasons – it was appropriate for me to learn something about its antithesis, catastrophe studies. We make progress not just by discovering and inventing things, or by democratizing access to them, but by learning how and why catastrophes occur and how to defend against them. In Doom, Ferguson provides an education on how we have and haven’t dealt with catastrophic circumstances in the past and present.

But Ferguson, an exceptionally charismatic speaker and TV host, is only a capable writer, not a luminous one. (I’ve said the opposite about Michael Lewis, whose COVID book, The Premonition, I recently reviewed in Advisor Perspectives: his speaking presence is good enough, but his writing is incomparable.) Doom drags on at times, with extended recitation of facts – necessary for comprehension but not conveyed with verve and brio – making me feel as though, by reading the book, I was completing a task rather than having fun.

Doom had the potential to be a masterpiece. However, it is too ambitious, setting forth what amounts to a history of the world. (Even Mel Brooks had the grace to break up his comic History of the World into parts I and II.) It covers too many topics, and reads as though it was compiled quickly, a mashup of essays on related topics rather than a unitary whole. But Doom is a rich vein of information and opinion, still very much worth reading.

Advice for investors

In the words of serial entrepreneur and business historian Gary Hoover, “business is applied social science.” For that reason, I have long encouraged investors to read big-picture writers, because investing is more about long-term social, technological, and political trends than about anything else. But too many such writers try to shoehorn events into a simple theory or one-variable explanation, when life is in fact very complex.

To Ferguson’s credit, he does not. His grand theory of catastrophes is that there is no grand theory of catastrophes. Each one and our reaction to them is different. They arrive randomly with little warning; vary immensely in size, duration, and impact; and respond to human action in widely differing degrees. While we can prepare for them with increasing effectiveness as we create new technological and social knowledge and learn from our past mistakes, we will sometimes be defeated no matter what we do. And then we will crawl our way back.

Laurence B. Siegel is the Gary P. Brinson Director of Research at the CFA Institute Research Foundation, the author of Fewer, Richer, Greener: Prospects for Humanity in an Age of Abundance, and an independent consultant. His latest book, Unknown Knowns: On Economics, Investing, Progress, and Folly, contains many articles previously published in Advisor Perspectives. He may be reached at [email protected]. His website is http://www.larrysiegel.org.

¹Mamet, David. 2011. The Secret Knowledge, p. 84. New York: Penguin. The exact quote is, “Anyone ever lost in the wild knows that nature wants you dead.”

²As Ferguson notes, variolation for smallpox was imported from China, where it may have been used as early as the 10th century.

³Abbey, Edward. 1977. “The Second Rape of the West,” in The Journey Home, city: publisher, p. 183. See also “Humans are a 'plague on Earth': Sir David Attenborough warns that negative effects of population growth will come home to roost,” unattributed, 2013, The Independent (January 22), https://www.independent.co.uk/climate-change/news/humans-are-a-plague-on-earth-sir-david-attenborough-warns-that-negative-effects-of-population-growth-will-come-home-to-roost-8461570.html.

⁴Ariès (1914-1984) is described in Wikipedia (accessed at https://en.wikipedia.org/wiki/Philippe_Ariès on August 5, 2021) as “a French medievalist and historian of the family and childhood, in the style of Georges Duby.” Who knew?

⁵I disagree on the question of city sizes, which are quite well explained by the Zipf power law. See my review of David Epstein’s Scale.

⁶Wucker, Michele. 2016. The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore. New York: Macmillan.

⁷I have slightly revised my thinking since I described the crisis as a gray rhino (which I called a black turkey) in my 2010 article, “Black swan or black turkey? The state of economic knowledge and the crash of 2007-2009,” Financial Analysts Journal, July/August 2010.

⁸The asset was the BBB tranche of the Markit ABX Home Equity Index (ABX-HE). Source: https://www.lse.ac.uk/iga/assets/documents/events/Power-Breakfasts/CrisisOfBeliefs-LSE-02.2019.pdf.

⁹What I really believe is that there is an ongoing tension, between, on one hand, the tendency of life to improve over time for the Whiggish reasons already stated; and, on the other hand, the tragic vision (first identified as such by the ancient Greeks) in which human nature, including the bad parts, changes very slowly if at all.

¹⁰In Gould, Stephen Jay. 1991. Bully for Brontosaurus. New York: W. W. Norton & Co.

¹¹Some accounts say that Doggerland was wiped out in one stroke by a tsunami, but it is more likely that the sea level rose gradually as the last Ice Age ended.

¹²Grubb, Farley. 1987. “Morbidity and Mortality on the North Atlantic Passage: Eighteenth-Century German Immigration.” Journal of Interdisciplinary History, Vol. 17, No. 3 (Winter), pp. 565-585, https://www.jstor.org/stable/204611. Grubb says that 18th-century German immigrants faced mortality rates comparable to those of African slaves transported to the Americas. My own ancestors, arriving a century later in steamships, fared better but many still arrived in diseased and weakened condition, and infant, child, and maternal mortality was very high.

¹³COVID years excepted. This is seat capacity, not actual seats occupied (most seats are occupied). I took the number for 2017 from https://www.statista.com/statistics/746083/passenger-capacity-between-europe-and-the-united-states/ and divided by two because the seat capacity number given is almost certainly both ways, not just westbound.

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