In the March/April issue of Foreign Affairs Niall Ferguson writes about the decline and fall of empires. What makes his perspective worth noting arises from his use of complexity theory as a guide to civilizations, as opposed to the more leisurely, cyclical view of older historians from Vico to Spengler to Toynbee. Ferguson, citing the work of the Santa Fe Institute and Nicholas Taleb, argues that complex entities, such as governments, societies, and economies, can change quite rapidly and unexpectedly. As examples, we can find the fall of the Bourbons in France (leading to the French Revolution), the fall of the Soviet Union (that few predicted), or the great economic crashes of 1929 or 2008 (which some, but only a few, predicted). Another example is the failure of bond markets to predict the outbreak of the Great War (this isn't mentioned in the article, but Taleb mentions Ferguson in The Black Swan on this point). After the fact, Ferguson notes, citing Taleb, we usually fall into the "narrative fallacy"; that is, the idea that the course of events as they unfolded makes perfect sense. But in fact, as the future, the course of events was essentially unpredictable. This view of history, I think, holds a great deal of merit. To borrow a phrase, hindsight is always 20-20. However, we don't live life backwards (although history is intriguing); we live life forward and must see as into a glass darkly.
Ferguson concludes his article with the suggestion that financial collapse is often connected with sudden changes in governments or political regimes, and that the U.S. public debt could provide such a trigger. Maybe. For the moment, interest rates remain low, and Krugman's argument that we need stimulus seems right. We are, nonetheless, in a bad way, and we as a nation—and as individuals—need to make sure that we have the necessary resiliency to withstand the shocks that might await us.