Western leaders all agree on something for the first time in two years and that should scare us.
There seems to be a pattern lately in how our leadership reacts to developments:
Watch a crisis approach from a long way off in slow motion
Make no major decision until the crisis is unavoidable.
Now that the crisis has occurred, make a really bold decision that affects the entire complex system of the world in an unprecedented way
Defend that decision with every resource you have at your disposal and vilify the opposition
Covid
With covid, governors in the Northeast US waited until cases had reached escape velocity to close schools and businesses, then kept social distancing kabuki theater in place for two years.
In doing so we separated about 10% of our national workforce from their job and turned off all our factories and assembly lines across the globe. Then we gave trillions of dollars away to Americans, even those who had seen their incomes grow during the pandemic.
Russia
The United States Intel community said they had irrefutable proof that Russia was about to invade Ukraine, but did not employ sanctions for weeks, until Russia had invaded Ukraine.
Once this horse had left the barn, America said we would sanction Russian oligarchs but not remove their country from the SWIFT financial messaging system.
Then this past Saturday some European nations said they’d kick Russia and Belarus off SWIFT (all the while simultaneously buying gas from Russia!).
So now Russia is kicked off SWIFT which will unleash holy hell on all normal Russians.
MEANWHILE the sanctions on their oligarchs, the people who actually have a chance to stand up to Putin, don’t go into effect in the United States until March 26th.
MEANWHILE there is a national fervor here in the West that we haven’t seen since the early days of lockdown where there are campaigns to dissuade people from shopping at “Russian Gas Stations” (these are mostly small business franchises owned by South-Asian immigrants) “drinking Russian vodka” (mostly manufactured in Texas at the same distillery that sells to Tito’s) and “expel Russian students from American universities (though so far I believe that’s just Eric Swalwell).”
UPS, Fedex, Maersk, MSC, and other massive shipping companies have boycotted Russian airports and ports without any official sanctions requiring them to do so. That has the feeling of a de facto blockade, which is an official act of war under all the maritime law I ever learned in the Navy.
Then there is sillier virtue-signaling coming from VC firms who are saying they are not going to invest in Russian startups (like they were ever going to in the first place). Everyone is competing to cancel Russia the hardest.
So there are two things that really concern me with all of this, and none of them have anything to do with the admirable and just struggle of the incredible Ukrainian people against Putin’s barbaric invasion.
1 - We are cavalierly messing with incredibly complex systems and we won’t be able to tell whether they’re broken until it’s too late to fix them
Supply chain globalization has led to tremendously complex just-in-time logistics systems. A butterfly can flap its wings in a Singapore microchip plant and Detroit’s car production will grind to a halt.
Until recently I’d have also said that this complex system was also quite resilient because it was decentralized and its participants were properly incentivized all up and down the chain.
But government reactions to recent events have had me change my mind, because this supply chain system is increasingly at the whim of “right side of history” consensus thinking and moral panics.
I’d like to thank Joe Norman for pointing me in the direction of “The Systems Bible” which you should read if you’re interested in this sort of stuff.
A few points from this book that are relevant:
Systems don’t enjoy being fiddled with and will react to protect themselves and the unwary intervenor may well experience an unexpected shock
If a big system doesn’t work, it won’t work. Pushing systems doesn’t help and adding manpower to a late project typically doesn’t help. However, some complex systems do work and these should be left alone. Don’t change anything.
In complex systems, malfunction and even total non function may not be detectable for long periods, if ever. Large complex systems tend to be beyond human capacity to evaluate. But whatever the system has done before, you can be sure it will do again
Kicking kids out of school for a year, severing the employer/employee relationship for 10% of Americans, firing unvaccinated individuals, barring Russia from SWIFT, shutting down nuclear reactors that provide baseline power, banning all flights from Russia to other continents, large shippers abandoning Russian ports - these are all steps that may have been prudent!
But:
They are irrevocable, and can’t be “taken back” even when they are “undone”
Our leaders are cavalierly charging headlong into these decisions with very little public debate or due process
These have massive impacts on our complex supply chain.
If these measures kill the systems they are impacting, we won’t know it for a long, long time. There is no feedback loop for us to measure until it’s too late.
What might result with a de facto blockade of the world’s 11th largest economy? Nobody knows, because the global economy is far too complex a system to know the causes and effects of such large moves.
But the stakes involve heating, gasoline, oil, gas, plastics, fertilizer, food, and the US Dollar’s reserve currency status. The stakes are really high.
2 - This is another “Right Side of History” idea that people are competing to take to extremes so much so that it is becoming a moral panic
The “right side of history” idea in February 2020 was that we must not shut down and must not wear masks or take any precautions against the virus because doing so would be xenophobic. We couldn’t just live our lives, we had to go to Chinatown to support our friends.
Then, suddenly, the right side of history changed. We had to take covid seriously and everyone had to shut down. There were certainly regulations to close businesses, but they were superfluous. Every corporation and individual got the message, we had to stay home. We had to wear masks at the beach, or not go to the beach. Some guy dressed up as the grim reaper on Florida beaches.
More importantly, average people had free rein to shame the few who thought lockdowns cost more than they gained, the virtue-signaling became a competition to see who could stay home the “best” and most responsibly.
Schools were remote for a year in half the country, then kids in that same half of the country were put into masks for two years. If you said this harmed children you were accused of wanting to kill children with covid.
Then the vaccines came out. Municipalities began “vaccine passport” programs and we were told the reason that we couldn’t get back to normal as a society was because the unvaccinated people were endangering the vaccinated people.
That didn’t make sense if you thought that vaccines worked, but that didn’t matter.
Nurses and teachers and truckers were fired by the thousands, businesses in New York and Chicago and elsewhere suffered tremendously as 80% of families were barred from entering their establishments (US 5-11 aged vaccination rate today still stands around 19%).
In the last few days these are getting cancelled everywhere they exist as it becomes clear they did not make sense. But the people remain fired from their jobs for good and the businesses who closed will never reopen.
As all this relates to Russia, one of the most discouraging things is that our leaders have internalized any humility from the last two years. We seem to be in a similar cycle where companies are joining the chorus of boycotting Russia without any off-ramps such as “removing troops from Ukraine” that might actually incentivize Putin to withdraw.
Some of them are even saying they will leave these in place “until Putin is out of office” which gives Putin the opposite incentive of what we want to put in place to protect Ukranians.
David Sacks put it rather well, I think:
All these people might end up being right in the measures the propose (except Eric Swalwell, who is definitely wrong).
This is, after all, a tricky situation!
But we should exercise caution applauding the bold and costly demands from the exact same leaders whose judgement has been shown to be subject to the vagaries of groupthink.
For many of these, there are no sanctions that companies are being told to enforce, leaders are merely demanding without due process that companies isolate Russia. If I were a company, I would ask for official sanctions and then happily oblige.
In conclusion, We are witnessing a blatant act of despotic aggression that has rightfully united the civilized world. Much like similar times of unity in the recent past, though, leaders are taking imprudent steps that irrevocably mess with complex systems without addressing the root cause of the problem.
If you want to help Ukraine and hurt Putin, boycotting your local Pakistani-American-owned gas station isn’t going to help those goals.
Donating directly to those who are fighting and helping will. Do so via bitcoin/eth (below) or talking to my friend Roman Lesko by reaching out here.
Thanks for this. Just a small side remark. Back in the 1982-1995 era, I worked at AAPL (I was on the original Mac team). I was repeatedly amazed at how management would take decisions and actions with one stated goal in mind (like maximize gross margin %) without seeing the possibility of counter-outcomes (like this could slash actual profits and revenue where customers can easily switch to other suppliers). Just reinforces your point that it's very hard to understand second, third, fourth-order outcomes, never mind oscillations, resonances, etc.
Beautifully written article that does highlight the effects of "unintended consequences" as a result of making avoidable policy blunders. Thank you for sharing this.