The Big Lessons From History

There are two kinds of history to learn from.

One is the specific events. What did this person do right? What did that country do wrong? What ideas worked? What strategies failed?

It’s most of what we pay attention to, because specific stories are easy to find.

But their usefulness is limited.

Covid-19 is the biggest event of the last decade, maybe the last generation. But what’s the takeaway for me? I’m not a policymaker or an epidemiologist, so specific lessons about public response and vaccine development aren’t relevant to me. They might be only a little relevant to policymakers and epidemiologists, because future pandemics could have little in common with this one.

History is full of specific lessons that aren’t relevant to most people, and not fully applicable to future events because things rarely repeat exactly as they did in the past. An imperfect rule of thumb is that the more granular the lesson, the less useful it is to the future.

The second kind of history to learn from are the broad behaviors that show up again and again, in multiple fields and different eras. They are the 30,000-foot takeaways from events that hide layers below the main story, often going ignored.

How do people think about risk? How do they react to surprise? What motivates them, and causes them to be overconfident, or too pessimistic? Those broad lessons are important because we know they’ll be relevant in the future. They’ll apply to nearly everyone, and in many fields. The same rule of thumb works in the other direction: the broader the lesson, the more useful it is for the future.

Let me offer one of those lessons from Covid-19. I think it’s one of the most important lessons of history:

Lesson #1: Calm plants the seeds of crazy.

Per-capita death from infectious disease in the United States declined 94% from 1900 to 2010. It went from the most common cause of death to one of the rarest.

Part of what’s made Covid dangerous is that we got so good at preventing pandemics in the last century that few people before January assumed an infectious disease would ever impact their lives. It was hard to even comprehend. The irony of good times is that they breed complacency and skepticism of warnings.

Smart epidemiologists have been warning this could happen for years. But mostly to deaf ears, and a public that assumed pandemics were something that happened only in history books and other parts of the world. It’s hard to convince someone that they’re in danger of a risk they assume had been defeated. Some of why “it’s just the flu” became a phrase this year is because it’s normal to cling to something you’re familiar with when confronted with something you’re not.

That wouldn’t have been the case if Covid-19 happened 100 years ago, or even 50 years ago. Infectious disease was so much more common then – from typhoid to measles to polio to scarlet fever – that the public’s understanding of how dangerous an outbreak could be was greater back then, even if we know infinitely more about viruses now than we did then.

In 1918 humans had never viewed a virus under a microscope. But “wear a mask and keep your distance” they understood better than we do today. “Plow money into vaccines and public health programs” – was something we became experts at in the 20th century, too. Then we got healthier and more naive. “As public health did its job, it became a target” of budget cuts, Lori Freeman, CEO of the National Association of Health Officials said this summer. Local health departments have lost a quarter of their workforce in the last decade.

The theme goes on and on: Two things have plunged in the last 80 years: death from bacterial infection, and funding/development of new antibiotics that will combat future infections. The U.N. thinks drug-resistant bacteria could kill 10 million people a year by 2050, reversing the lives saved since penicillin came into use in 1945.

Historian Dan Carlin writes in his book The End is Always Near:

Nothing separates us from human beings in earlier eras than how much less disease affects us. If we moderns lived for one year with the sort of death rates our pre–industrial age ancestors perpetually lived with, we’d be in societal shock.

Societal shock. That’s the important part.

It’s weird to think that Covid would be easier to deal with if we hadn’t made so much infectious-disease progress over the last century. But we did. So now it’s a generational nightmare. Calm plants the seeds of crazy.

A lot of things work like that.

Carl Jung had a theory called enantiodromia. It’s the idea that an excess of something gives rise to its opposite.

When there are no recessions, people get confident. When they get confident they take risks. When they take risks, you get recessions.

When markets never crash, valuations go up. When valuations go up, markets are prone to crash.

Banning small forest fires leads to big forest fires.

The opposite is true, too. Crazy plants the seeds of calm, because wild times incentivize people to solve problems and stay alert, like a healthy dose of paranoia.

That’s a big, broad takeaway of Covid that repeats itself throughout history: Nothing too good or too bad stays that way forever, because great times plant the seeds of their own destruction through complacency and leverage, and bad times plant the seeds of their own turnaround through opportunity and panic-driven problem-solving. The same story, again and again.

Lesson #2: Progress requires optimism and pessimism to coexist.

John McCain became the most famous Vietnam prisoner of war. But at the time, Admiral Jim Stockdale was the highest-ranking POW.

Stockdale was tortured routinely, and at one point attempted suicide out of fear he might break and give up sensitive military information.

Decades after he was released, Stockdale was asked in an interview about how depressing life in prison must have been. He responded: “Well, you have to understand, it was never depressing. Because despite all those circumstances, I never ever wavered in my absolute faith that not only would I prevail— [I’d] get out of this.”

Pure optimism.

But, not really.

Stockdale was then asked who had the hardest time in prison. He responded:

Oh, it’s easy. I can tell you who didn’t make it out. It was the optimists. The optimists. Yes. They were the ones who always said, ‘We’re going to be out by Christmas.’ Christmas would come and it would go. And there would be another Christmas. And they died of a broken heart.

This is what I learned from those years in the prison camp, where all those constraints just were oppressive. You must never ever confuse, on the one hand, the need for absolute, unwavering faith that you can prevail despite those constraints with, on the other hand, the need for the discipline to begin by confronting the brutal facts, whatever they are. We’re not getting out of here by Christmas.

Heavy. And true for a lot of things.

The best financial plan – and I think this extends beyond finance – is to save like a pessimist and invest like an optimist.

Embrace that the short run is a continuous chain of setbacks and disappointments, problems and embarrassments, breakages, recessions, depressions, bear markets, pandemics, and errors.

But none of those prevent the long run from being able to compound into something glorious.

The trick is being able to survive the short-run problems so you can stick around long enough to enjoy the long-term growth.

Those can seem like conflicting skills. And they are. It’s intuitive to think you should either be an optimist or a pessimist. It’s hard to realize there’s a time and a place for both, and that the two can – and should – coexist. But it’s what you see in almost every successful long-term endeavor.

The business that takes huge risks with new products, like an optimist, but is terrified of short-term debt and always wants a big chunk of safety-net cash, like a pessimist.

The worker who turns down a lucrative opportunity because it might come at the expense of their reputation, which over the long run is exponentially more valuable.

Same in investing. I wrote in my book: “More than I want big returns, I want to be financially unbreakable. And if I’m unbreakable I actually think I’ll get the biggest returns, because I’ll be able to stick around long enough for compounding to work wonders.”

An important lesson from history is that the long run is usually pretty good and the short run is usually pretty bad. It takes effort to reconcile those two, and learn how to manage them with what seem like conflicting skills. Those who can’t usually end up either bitter pessimists or bankrupt optimists. The same story, again and again.

Lesson #3: People believe what they want to believe, see what they want to see, and hear what they want to hear.

In 1997 a religious cult called Heaven’s Gate believed a spaceship traveling behind a comet was heading to Earth to pick up true believers and carry them to paradise.

Several cult members pitched in to buy a high-powered telescope. They wanted to see the spaceship with their own eyes.

They found the comet in the sky. But there was no spaceship following it.

So they took the telescope back to the store for a refund. The store manager asked if there was something wrong. They said yes, the telescope was clearly broken – because it didn’t show the spaceship.

There’s a long history of people believing what they want to believe.

And not just cult members.

In 1923, Henry Luce wanted to create a magazine called FACTS. It was only going to report on things that were objectively true. But Luce soon realized that was harder than you’d think. Instead he called it TIME, with the idea that saving readers time with succinct stories was the most value a publisher could add. “Show me a man who thinks he’s objective and I’ll show you a man who’s deceiving himself,” Luce said.

A few things innocently push us to believe what we want to believe.

One is that everyone has a model in their head of how they think the world works, and that model is built mostly from what you’ve experienced and what people you trust have told you. But since everyone has different experiences and trust a different set of people, the models of how we think things work vary wildly from person to person.

Here’s an extreme example that ended in disaster. The book D-Day Through German Eyes interviewed surviving Nazi soldiers, asking them what they saw when the Allies came ashore in France. One German soldier said he and his fellow troops were shocked at how angry the Americans were at the Germans. They couldn’t understand why. Germans, he said, had been so thoroughly indoctrinated to believe they were the good guys, the guardians of Europe, that they couldn’t fathom how anyone could see it differently. The soldier said:

I think that I had the belief that the civilised Americans would not wish to disturb the peace of France. We in the German forces thought that we had gone to such lengths to protect France, to guard its people against harm. I think that deep down I could not believe that the Americans would shatter this peace we had achieved.

I was wrong about everything. I know today, ten years later, that everything I believed during the war was a mistake. I understand today that we Germans were not in France to protect the people, we were there only to exploit and persecute them. We should never have been in France, or Russia, Italy, any of those places. The things that we did were appalling . . . everything was wrong. Why would those Americans hate us so much? Well, because they knew the truth of what we were doing, that is why.

Everyone wants to believe they’re thinking independently, with an understanding of how things work and why things are happening. But everyone has only seen the world through the narrow lens of their own experiences and social circles. No one wants to wake up every morning and say, “I don’t know 99.9% of what’s happening in the world, or what 99.9% of other people are thinking,” – it’s too hard to accept because it makes you feel like you’re not in control. Everyone, though, suffers some degree of blindness. And the easiest way to deal with that blindness is to reject things you come across that don’t match how you think the world works. When met with the problem, “Either the model of how I think the world works is wrong, or this other person is wrong,” the path of least resistance is always to point at the other person.

A second reason people believe what they want to believe is incentives.

The most powerful way to get someone to believe something is not to show them facts, because facts can be interpreted in different ways. It’s to make their income or approval in a social circle depend on believing it.

Incentives are expert storytellers, able to convince you that nonsense is real, harm isn’t happening, value is being created, and that whatever you’re doing is just fine.

One of my unpopular views after the financial crisis is that people were too critical of “greedy bankers,” because critics underestimate their own willingness to sell subprime bonds if a $17 million bonus were dangled in front of them. That’s not an excuse for breaking the law or causing havoc. It’s an observation that many good people will break the law and cause havoc if the incentives are there.

An important lesson from history is that everyone sees the world through a different lens, and incentives can cause smart people to embrace and defend ideas that range from goofy to disastrous. It shows up all over the place. The same story, again and again.

Lesson #4: Important things rarely have one cause.

In 1932, Congress set about to try to explain how the Great Depression happened. It hauled in a bunch of characters – from bankers to economists to CEOs – looking for answers.

Richard Whitney, chairman of the New York Stock Exchange, was one of the first to testify. Asked what caused the Depression, he answered: “Ask the one hundred and twenty-three million people in the United States.”

Whitney turned out to be a crook, but his answer was perfect. The best and most honest answer Congress received.

We desperately want simple answers to explain outlier events, because every good story needs one hero and one villain.

But it’s nearly impossible for something big to happen because of one event, one person, or one group.

The world is stable enough that one person, company, or event almost never moves the needle much on their own. But the needle still moves all the time, because unrelated things often collide and morph into something important.

This happens two ways.

One is when several things occur at once. In his documentary on American history, Oliver Stone says, “Real history is the story of lots of things happening at the same time.”

The Great Depression, for example, was a stock market crash and a banking crash and a real estate bubble and an agricultural disaster and a poor policy response. None of those things on their own were that big a deal. But when they happened at the same time – wham, it was a catastrophe.

Covid-19 is similar. A virus transferred from animal to humans (has happened forever) and those humans socialized with other people (of course). It was a mystery for a while (small sample size) and then bad news was then likely suppressed (hoping it would soon end). Other countries thought it would be contained (standard denial) and didn’t act fast enough (bureaucracy, lack of leadership). We weren’t prepared (over-optimism) and could only respond with blunt-force lockdowns (do what you gotta do) and panic (calm plants the seeds of crazy).

Remove just a few of those and 2020 may have looked like a normal year. But they all happened at once, so we got the biggest event of a generation. And it makes answering the question, “How did Covid-19 get this bad” more complicated than we want it to be. The most accurate answer may be something like Richard Whitney’s: Ask the seven billion people on the Planet Earth.

The other reason big events rarely have one cause is that all important events have ancestors – siblings, parents, grandparents, cousins – that have to be understood and recognized to understand how an event happened.

I once explained it like this:

What caused the financial crisis?

Well, you have to understand the mortgage market.

What shaped the mortgage market? Well, you have to understand the 30-year decline in interest rates that preceded it.

What caused falling interest rates? Well, you have to understand the inflation of the 1970s.

What caused that inflation? Well, you have to understand the monetary system of the 1970s and the hangover effects from the Vietnam War.

What caused the Vietnam War? Well, you have to understand the West’s fear of communism after World War II …

And so on endlessly.


Viewing events in isolation makes it easier to place blame or admiration on a single person. It’s not until you study an event’s long roots that you recognize the chain of events that leads to something meaningful happening. And long chains of events are not the kind of thing that happens because of one person. They’re more wild and unpredictable, since each link in the chain could have gone multiple ways.

An important lesson from history is that big events are more complicated than we make them out to be – and the bigger the event, the more complexity. It makes forecasting hard, politics nasty, and learning specific lessons from big events harder than we’d like to think. The same story, again and again.

Lesson #5: Risk is what you don’t see.

Harry Houdini used to invite the strongest man in the audience on stage. Then he’d ask the man to punch him in the stomach as hard as he could.

Houdini was an amateur boxer, and told crowds he could withstand any man’s punch with barely a flinch. The stunt matched what people loved about his famous escapes: the idea that his body could conquer physics.

After a show in 1926 Houdini invited a group of students backstage to meet him. One, a guy named Gordon Whitehead, walked up and started punching Houdini in the stomach without warning.

Whitehead didn’t mean any harm. He thought he was just performing the same trick he saw Houdini pull off on stage.

But Houdni wasn’t prepared to be punched like he would be on stage. He wasn’t flexing his solar plexus, steadying his stance, and holding his breath like he normally would before the trick. Whitehead caught him off guard. Houdini waved him off, clearly in pain.

The next day Houdini woke up doubled over in pain.

His appendix was ruptured, almost certainly from Whitehead’s punches.

And then Harry Houdini died.

The riskiest stuff is always what you don’t see coming.

Houdini was once handcuffed, placed inside a dead whale’s stomach, and escaped through its mouth, nearly suffocating in the process. Another time he dug his way out from being buried six feet underground in a casket wearing a straight jacket.

He could survive all of those because he was prepared. He knew what was coming.

The one thing he wasn’t prepared for – an innocent student’s jab – killed him.

Risk always works like that.

The biggest risk is what no one sees coming, because if no one sees it coming no one’s prepared for it, and if no one’s prepared for it its damage will be amplified when it arrives.

What are the most important events of the last 100 years – the stories that moved the needle more than anything else? My list would be:

These events have two things in common.

One is that they instantly shove the world in a new direction and become the grandparents of a bunch of seemingly unrelated events.

Two, and most important, is that no one saw them coming. They surprised nearly everyone.

In an interview years ago I asked Robert Shiller, who won the Nobel Prize for his work on bubbles, about the inevitability of the Great Depression. He answered:

Well, nobody forecasted that. Zero. Nobody. Now there were, of course, some guys who were saying the stock market is overpriced. But if you look at what they said, did that mean a depression is coming? A decade-long depression? No one said that.

I have asked economic historians to give me the name of someone who predicted the depression, and it comes up zero.

That’s what made the depression a big deal! No one was prepared for it because no one saw it coming. So people couldn’t deal with it financially (paying their debts) and mentally (the shock and grief of sudden loss).

Same with Pearl Harbor. Harry Truman, a senator at the time, was called on December 7th, 1941, by an aide who said, “The Japs are bombing Pearl Harbor.” Truman responded: “Are you sure you know what you’re talking about?” Winston Churchill called Franklin Roosevelt not to offer his support, but to ask whether the news he was hearing could possibly be true. The news was incomprehensible – both because of the fact that it happened, and coming to terms with what it meant.

Two things happen when you’re caught off guard. One is that you’re vulnerable, with no protection against what you hadn’t considered. The other is that surprise shakes your beliefs in a way that leaves you paranoid and pessimistic. Driving by car surged after 9/11 as people avoided air travel, leading to more excess car deaths than casualties from the actual terrorist attacks. After Pearl Harbor it was a foregone conclusion, doubted by few, that Japan would soon attack California.

An important lesson from history is that the risks we talk about in the news are rarely the most important risks in hindsight. We saw that over the last decade of economists and investors spending their lives discussing the biggest risk to the economy – was it Ben Bernanke’s monetary policy? Barack Obama’s fiscal policy? Donald Trump’s trade wars?

No, none of those. It was a virus. Out of the blue, causing havoc we couldn’t comprehend.

The same story, again and again.