Roubini on Blockchain and History

26 01 2018

The economist Nouriel Roubini is quite skilled at using historical knowledge to make sense of the present. For many years, historical analogical reasoning has appeared quite frequently in his columns. (Roubini has co-authored with a PhD historian, Stephen Mihm, which shows that he takes history seriously). Roubini’s most recent column, which is about blockchain technology, also uses historical analogy to understand what’s going on in fintech. I’m just not totally convinced he is using the tool of historical analogy well in this particular case.

Roubini writes:

Boosters of blockchain technology compare its early days to the early days of the Internet. But whereas the Internet quickly gave rise to email, the World Wide Web, and millions of commercial ventures, blockchain’s only application – cryptocurrencies such as Bitcoin – does not even fulfill its stated purpose.

I’m left wondering whether Roubini is employing  historical analogy correctly here– it took some time for the Internet to be repurposed for uses that were not originally envisioned by its creators. I’m thinking of online car dealerships, Tinder, the Internet of Things, etc. Maybe we need to give blockchain more time. Moreover, I’m not convinced that Roubini’s claim that the only use of blockchain is cryptocurrencies– isn’t the UK NHS experimenting with using blockchain to track blood donations?

Roubini tells us

Since the invention of money thousands of years ago, there has never been a monetary system with hundreds of different currencies operating alongside one another. The entire point of money is that it allows parties to transact without having to barter. 

Really? I think that there were a number of Bitcoin-style “forks” in the history of other forms of money. That’s why many currencies have a sub-unit called “the penny” that is descended from the old silver penny of medieval times. These modern units can be exchanged with each other, albeit with some difficulty, just as we can exchange the  three forked Bitcoin standards we now have.

Roubini also writes that

Until now, Bitcoin’s only real use has been to facilitate illegal activities such as drug transactions, tax evasion, avoidance of capital controls, or money laundering

We might deplore these activities as much as we decry the misuse of the Internet, and the invention of fire, by bad people but that doesn’t prove that Bitcoin isn’t going to be socially transformative.

Don’t get me wrong– I tend to agree with Roubini’s view that Bitcoin is a bubble. His use of history is much better than that of the Bitcoiner promoters who use trash historical analogies on SeekingAlpha, where investors are told that “No asset in history has appreciated so rapidly. Therefore, Bitcoin is different, thus we can expect it to behave differently, and this does not necessarily mean that it’s a bubble.” Roubini is doubtless right when he says that As a currency, Bitcoin should be a serviceable unit of account, means of payments, and a stable store of value. It is none of those things. I’m just not convinced that all of the historical arguments he adduces here are accurate.



Larry Summers on Trump

4 02 2017

Larry Summers had joined the chorus of establishment figures who are ringing alarm bells about the current direction of travel in the United States. (Last week, David Frum, a former Bush speechwriter and lifelong Republican (!), published an essay in which he charged that Donald Trump is taking the United States in the direction of becoming an authoritarian ‘managed democracy’ along the lines of Erdogan’s Turkey or Putin’s Russia).  Larry Summers, erstwhile Secretary of the Treasury and President of Harvard, is calling on business leaders to resist Trump. I struck/shocked by the historical analogy that was used in the Harvard Business Review’s interview with Summers.

Interviewer:  You’ve mentioned, a couple times, parallels with 1930s Europe. How far would you take the parallel at this point?

Summers: If history teaches us anything, it is that authoritarianism is best combated at early stages rather than late stages. I’m not saying that I think that American democracy is somehow lost…But the resilience of American institutions isn’t something that happens automatically. It’s something that happens because people see dangers and take steps. So I think one can learn from the most extreme instances about the kinds of moral ideas that are important…

Note that Summers is carefully distancing himself from the more hysterical online voices that are talking about Reichstag Fires and possible coups. However, he isn’t dismissing out of hand the suggestion that there are  parallels between Trump’s election and the rise of dictators in the interwar period.

In the days immediately after Trump’s inauguration, Summers was using a very different historical analogy, the election of Herbert Hoover in 1928. You can see Summers using this historical analogy in an interview uploaded to YouTube on 30 January. Hoover’s election was followed by a “sugar rush” surge in share prices that was unsupported by the developments in the real economy. By using this analogy, Summers was lending credence to both the idea that Trump will be a bungler who ruins the economy and to Robert Shiller’s view the recent increase in share prices is not justified by the fundamentals.

In the HBC interview, Summers and his interlocutor are using a far darker historical analogy. Instead of comparing Trump to Hoover the bungler, Summers is comparing him to a dictator. Other centre-left and centre-right commentators in the US have used similar language to describe Trump.

To my mind, the most interesting thing said by Summers is about the impact of “short-termism” on the willingness of US CEOs to speak truth to power by joining the resistance to Trump. A great deal has been written about short-termism and quarterly capitalism, the tendency of the current generation of business leaders to have limited time horizons that contrast with the longer-term orientation that was likely common in US business a generation or two ago. (In my view, the long-term orientation of many US CEOs in the 1950s and 1960s was due to the influence of the philosophy of corporate governance promoted by Berle and Means in an influential book published in 1933–see here for a more detailed explanation).

Summers: But if you’re going to talk about your civic responsibility, as many business leaders do, if you’re going to talk about long-termism, as almost all business leaders do these days, what could be a more important long-term issue for American business than American leadership in the world? And I haven’t seen business leaders speaking out against protectionism in public. It’s very clear that, in private, many of them are deeply troubled by the signs that we’re moving in a protectionist direction.

Summers is right that there has been a lot of rhetoric from business leaders recently about the need to escaped from the curse of short-term thinking. Yes, business leaders in Davos and elsewhere have given renewed attention to the social, geopolitical, and cultural foundations of the business ecosystems in which they operate.  However, I’m not convinced that there has been a genuine shift in thinking towards the long-term, civic orientation that Summers favours. It is true that some business leaders have heroically spoken out against Trump. There may be a larger number of CEOs who are willing to say, in private, the Trump’s actions threaten the business ecosystem in which they have prospered. I suspect that  most business leaders will be like the CEO of Uber— they won’t distance themselves from Trump until their real-time data analytics suggest that consumers are starting to boycott their products. (This CEO resigned from Trump’s economic council after the #DeleteUber protest started getting rolling).

Bottom line: I’m not convinced US CEOs will stand up to Trump and unless they are prompted to by consumer pressure. Historically, CEOs have behaved generally adopted an unheroic stance during takeovers of democratic regimes. Only one or two of the oligarchs in Russia protested Putin’s efforts to construct an autocracy there. Ditto for Italy in the 1920s.  Moreover, the short-term orientation of my most US  CEOs means that they are especially unlikely to speak publicly against Trump, regardless of what they might say to Larry Summers in private. Impatient capital and the US system of corporate governance means that the CEOs of public companies aren’t really free to speak up in defence of Statue of Liberty values.

How Does Davos Man Use History to Make Sense of New Technologies?

22 01 2016

The World Economic Forum is currently underway in Davos. The great and the good are gathered there to discuss the future of the world economy. The term Davos Man is often applied to the elites who gather there. I’ve used that moniker in the title of this blog post, even though I know it is somewhat misleading because it suggests a degree of cognitive uniformity among the very heterogeneous group of individuals at Davos. There does appear to be a herd mentality and an element of group think at this event.

The theme of this year’s WEF is technology, specifically, the “Fourth Industrial Revolution.” This label is being applied to a grab bag of technologies that includes Big Data, 3D printers, advances in biotechnology, and self-driving cars. Whether the term Fourth Industrial Revolution makes any sense is an issue I will leave to another blog post. The crucial thing for our purposes it that the concept has caught on life wildfire.  It is interesting that Professor Klaus Schwab and the other Davos organizers have chosen a title for this year’s gathering that is so rich in historical significance: the term Fourth Industrial Revolution evokes previous Industrial Revolutions which, as every schoolchild knows, has massive economic, social, and political consequences.


Professor Schwab develops this historical analogy in his new book, where he writes:

Previous industrial revolutions liberated humankind from animal power, made mass production possible and brought digital capabilities to billions of people. This Fourth Industrial Revolution is, however, fundamentally different. It is characterized by a range of new technologies that are fusing the physical, digital and biological worlds, impacting all disciplines, economies and industries, and even challenging ideas about what it means to be human.



In the last few days, the term Fourth Industrial Revolution has been thrown around in the press and the blogosphere. The meme has gone global: see here, here, and here. Two days ago, Hewlett Packard Labs posted some ideas about strategies for the Fourth Industrial Revolution.  The blog  post included this image:


Larry Hatheway, the Chief Economist of GAM Holding, developed this historical analogy in his syndicated column about the WEF2016 theme. He wrote:

The First Industrial Revolution was based on the steam engine. James Watt’s invention, introduced around 1775, powered the nineteenth-century expansion of industry from its origins in England to Europe and the United States. The Second Industrial Revolution, from the last third of the nineteenth century to the outbreak of World War I, was powered by developments in electricity, transportation, chemicals, steel, and (especially) mass production and consumption. Industrialization spread even further – to Japan after the Meiji Restoration and deep into Russia, which was booming at the outset of World War I…

James Watt is getting a lot of publicity this week. Why have so many people picked up on this concept of the Fourth Industrial Revolution? Why are so many journalists, policymakers, and businesspeople trying to use analogies with past Industrial Revolutions to try to predict the future?  We are all familiar with the fact that investment prospectuses say, past performance is no guarantee of future results. We all know that history doesn’t repeat itself although sometimes it rhymes.  However, in moments of radical uncertainty, we tend to gravitate to the past as a sensemaking tool. Whether it is a good analytical device is a separate issue.

Individuals frequently employ historical-analogic reasoning and historical periodization to make sense of the unfamiliar.  The trajectory of change in industries characterized by incremental innovation is relatively easy to predict.  In contrast, radically disruptive technologies are an important source of uncertainty for economic actors ( see the academic research by Sainio, Ritala, & Hurmelinna-Laukkanen, 2012; Petrakis, Kostis, & Kafka, 2015). It is not, therefore, surprising to see observers, particularly journalists, economists, and CEOs who necessarily lack detailed specialist knowledge of the specifics of the “Fourth Industrial Revolution” technologies, gravitate towards historical analogies as a sensemaking tool.

If you are interested in the more general issue of how ideas about history shape the strategies of economic actors, my recent article, which was co-authored with Jason Russell, can serve as a gateway in the literature.


Update: To date, none of the economic historians in the academic blogosphere have ventured any comments about whether the concept of the Fourth Industrial Revolution is valid or simply a marketing gimmick. Seems like a wasted opportunity/teachable moment.




Petrakis, P. E., Kostis, P. C., & Kafka, K. I. (2015). Secular stagnation, faltering innovation, and high uncertainty: New-era entrepreneurship appraisal using knowledge-based thinking. Journal of Business Research.

Hill, R. C., & Levenhagen, M. (1995). Metaphors and mental models: Sensemaking and sensegiving in innovative and entrepreneurial activities.Journal of Management21(6), 1057-1074.

Sainio, L. M., Ritala, P., & Hurmelinna-Laukkanen, P. (2012). Constituents of radical innovation—exploring the role of strategic orientations and market uncertainty. Technovation32(11), 591-599.