And as it was in the days of Noah, so shall it be also in the days of the Son of man. They did eat, they drank, they married wives, they were given in marriage, until the day that Noah entered into the ark, and the flood came, and destroyed them all.
— Luke 17:26–30
For the judeo-western inspiration, it is a mistake of the first magnitude to place too much value on the things of this world. Those who busy themselves with the meaningless ideologies of politics, or with the interminable drama of human soap operas, or with the limitless accumulation of wealth, are losing sight of the impending catastrophe that may unfold towards the end of history. The entire human order could unravel in a relentless escalation of violence — famine, disease, war, and death. The final book of the Bible, the Book of Revelation, even gives a name and a place: The Battle of Armageddon in the Middle East is the great conflagration that would end the world. Against this future, it is far better to save one ’s immortal soul and accumulate treasures in heaven, in the eternal City of God, than it is to amass a fleeting fortune in the transient and passing City of Man.
For the rationalists of the eighteenth and nineteenth centuries, as well as for all those who consider themselves cosmopolitan today, this sort of hysterical talk about the end of the world was deemed to be the exclusive province of people who were either stupid or wicked or insane (although mostly just stupid). Scientific inculcation would replace religious indoctrination. Today, we no longer believe that Zeus will strike down errant humans with thunderbolts, and so we also can rest peacefully in the certain knowledge that there exists no god who will destroy the whole world.
And yet, if the truth were to be told, our slumber is not as peaceful as it once was. Beginning with the Great War in 1914, and accelerating after 1945, there has re-emerged an apocalyptic dimension to the modern world. In a strange way, however, this apocalyptic dimension has arisen from the very place that was meant to liberate us from antediluvian fears. This time around, in the year 2008, the end of the world is predicted by scientists and technologists. One can read about it every day in the New York Times, that voice of the rational and cosmopolitan Establishment. Will it be an environmental catastrophe like runaway global warming, or will it be murderous robots, Ebola viruses genetically recombined with smallpox, nanotech devices that dissolve the living world into a gray goo, or the spread of miniature nuclear bombs in terrorist briefcases?
Even if it is not yet possible for humans to destroy the whole world, on current trends it might just be a matter of time. The relentless proliferation of nuclear weapons remains the most obvious case in point. The United States became the first nuclear power in 1945; by the 1960s and through the 1980s, at the height of the Cold War, five declared nuclear states (the U.S., the uk, France, the ussr, and China) maintained a semi-stable equilibrium (at least as recounted by the historians who know ex post that the Cold War remained cold); as of today, there are two more known nuclear states (India, Pakistan) and perhaps even more (Israel, North Korea). And what if there are 20 nuclear powers in 2020, or 50 nuclear powers in 2050, armed with Jupiter missiles that can rain down destruction on enemies everywhere? We suspect the answer to this question, for we know that there exists some point beyond which there is no stable equilibrium and where there will be a nuclear Armageddon. A scientific or mathematical calculus of the apocalypse has replaced the mystic vision of religious prophets. 1
On the surface, the world’s financial markets remain eerily complacent. For the most part, they remain firmly rooted in the nineteenth century, when the march of History and Progress were more optimistic and certain. Although it encounters perturbations and larger corrections, the climb of the Dow Jones continues on an inexorable north-easterly path.
The news and business sections seem to inhabit different worlds that coexist on the same planet but rarely intersect. 2 Most financial actors are content to rule their separate kingdom, and to refrain from unprofitable questions about the integrity of the larger whole. Those who ask too many questions are not given a serious hearing. Like the deranged orators in London ’s Hyde Park, the prognosticators of a financial doomsday have been wrong for too long. Consequently, they have been relegated to a marginal role, if for no other reason than that they have lost most of their money and have no significant capital left to invest in anything.
More generally, apocalyptic thinking appears to have no place in the world of money. For if the doomsday predictions are fulfilled and the world does come to an end, then all the money in the world — even if it be in the form of gold coins or pieces of silver, stored in a locked chest in the most remote corner of the planet — would prove of no value, because there would be nothing left to buy or sell. Apocalyptic investors will miss great opportunities if there is no apocalypse, but ultimately they will end up with nothing when the apocalypse arrives. Heads or tails, they lose.
In a narrow sense, it seems rational for investors to remain encamped at the altar of the efficient market — and just tend their own small gardens without wondering about the health of the world. A mutual fund manager might not benefit from reflecting about the danger of thermonuclear war, since in that future world there would be no mutual funds and no mutual fund managers left. Because it is not profitable to think about one ’s death, it is more useful to act as though one will live forever. 3
Such a narrowing of one’s horizon cannot, however, be the last word. After all, there exists some connection between the real world of events, on the one hand, and the virtual world of finance, on the other. For macro investors, it would be an abdication not to wrestle with the central question of our age: How should the risk of a comprehensive collapse of the world economic and political system factor into one ’s decisions?
From the point of view of an investor, one may define such a “secular apocalypse” as a world where capitalism fails. Therefore, the secular apocalypse would encompass not only catastrophic futures in which humanity completely self-destructs (most likely through a runaway technological disaster), but also include a range of other scenarios in which free markets cease to function, such as a series of wars and crises so disruptive as to drive the developed world towards fascism, anarchy, or both.
Since the direct approach to our central question leads to paradoxes, absurdities, or at best money-losing investment schemes, it might prove more profitable to explore the inverse as a thought experiment: What must happen for there to be no secular apocalypse — for what one might call the “optimistic” version of the future to unfold? And furthermore, which sectors will do well — surprisingly well, in fact — if the world more or less stays intact, even if there are some major bumps and dislocations along the way? Any investor who ignores the apocalyptic dimension of the modern world also will underestimate the strangeness of a twenty-first century in which there is no secular apocalypse . If one does not think about forest fires, then one does not fully understand the teleology of each tree — and one badly will undervalue those trees that are immune to all but the greatest of fires. Even in our time of troubled confusion, there exists a chance that some things will work out immeasurably better than most believe possible.
As we embark on our ambitious voyage to the ends of the earth, one cautionary note is in order. Thought experiments are notoriously misleading. Unlike more rigorous forms of scientific investigation, there are no empirical means to falsify these mental exercises. The optimistic thought experiment exists largely in the mind. The vistas of the mind are not always the same as reality. One could do worse than to ignore Milton ’s seductive promise: “The mind is its own place, and in itself, can make a heaven of hell, a hell of heaven. ”
Globalization and the history of bubbles
And the whole earth was of one language, and of one speech. . . . And they said, Go to, let us build us a city and a tower, whose top may reach unto heaven; and let us make us a name, lest we be scattered abroad upon the face of the whole earth. And the Lord came down to see the city and the tower, which the children of men builded. And the Lord said, Behold, the people is one, and they have all one language; and this they begin to do: and now nothing will be restrained from them, which they have imagined to do.
— Genesis 11:1, 3–6
By definition, the apocalypse would be worldwide in extent. For this reason, the point of departure for our thought experiment centers on the future of worldwide events — that is, on the future of globalization. In this, we are guided by the hope that the right sort of globalization might prevent the apocalypse and give us peace in our time.
One can begin with the usual bromides and banalities. “Globalization” means a breaking down of barriers between nations; an increase in travel and knowledge about other countries; an increase of trade and competition among and between the peoples of the world, to the point where there is a more or less level playing field in the entire world; and the death of all cultures, in the sense of robust systems that exclude part of humanity. On the level of economics, it means a global marketplace; and on the level of politics, it means the ascension of transnational elites and organizations, at the expense of all localized countries and governments.
Even these preliminary observations remind one that globalization remains far from complete. Massive barriers to trade remain. The nation-state has not withered away. On the crudest of economic measures — say, the difference between the income of a car factory worker in Detroit and in Shenzhen — the gulf between the present and a truly global future remains vast. And on the level of the un, the wto, or Echelon, political unity remains more an aspiration than a reality.
At the same time, the current round of globalization has reached a point equal to or greater than past cycles. As measured by the percentage of tradable gdp, or the number of people who live in countries different from their place of birth, or even more abstractly, the connectivity of the world, we stand at a level of globalization that compares with the previous peak year of 1913.4
It is beyond the scope of this essay either to enumerate all drivers of these trends or to determine whether the pro- or anti-globalization forces will gain the upper hand in the longer term. Still, the following conclusion seems safe: Since we are very far from any stable equilibrium, the future is likely to be much more or much less globalist than the present.
A disturbingly large segment of the global population perceives much of globalization to be injurious. Admittedly, the free travel of terrorists among the nations of the world does not make the world a better place; and neither does the unrestricted trade in offensive weapons technologies; and nor does the ability of criminals to launder ill-gotten gains through offshore banks in Antigua or Vanuatu. In an ever-shrinking world, groups that once managed to live in relative peace through separateness feel increasingly threatened, and some react with violence. For every account of globalization that culminates in the capitalist paradise, there are others in which globalization results in world-wide anarchy or tyranny. At a first approximation, the best possible future follows the straight and narrow path between these unappealing alternatives. The narrowness of the path is determined by the combination of the spread of destructive technology and the difficulty of improving human nature.
In contrast to the divergent future worlds of globalization, all versions of anti-globalization are incoherent. Of course, one can imagine various details: less trade and travel; more robust boundaries; the elimination of ngos; and a turning back of the clock, so as to restore cultural institutions that are in the process of breaking down. But the pieces do not add up, at least not on the level of the whole world. By its very nature, anti-globalization cannot be a global political agenda. Every worldwide conference or gathering of anti-globalization activists or politicians necessarily dissolves into self-contradiction — or worse, becomes a deceptive cover for some bad version of globalization, such as a worldwide communist revolution.
While it is theoretically possible for individuals and small communities to opt out of globalization and its benefits, in practice this is not an option that all people in all countries will choose, at least not based on their own free will. The momentum towards globalization is hard to resist or to reverse. As a striking case in point, consider that even North Korea, perhaps the most autarchic state in the world, presents no exception to this rule. The country has encouraged a certain dysfunctional version of global trade, as it exports heroin, ballistic missiles, and counterfeit currency, so that its governing clique can import cognac, German cars, and Swedish prostitutes.
Although the trend towards globalization will not end by individual choice and cannot end by coordinated global action, one other possibility does remain. Globalization may end by accident or by terrible miscalculation: It may end by world war. 5 Because there would be no winners in a new world war, every path away from globalization will end in catastrophe. Thus, in spite of the many uncertainties surrounding the costs and benefits of a more globally integrated world, investors have no choice but to bet on globalization. There are no good investments in a twenty-first century where globalization fails 6
The idea of globalization is not new. It is coeval with the modern West. Starting in the seventeenth century, the dawn of the modern era, the global state or market has become the sine qua non for this-worldly peace and security.
This already is implicit in the writings of Thomas Hobbes, the definitive political philosopher of modernity. For Hobbes, the natural state must be replaced by an artificial or virtual world over which humans have full mastery and control. The telos is replaced by the fear of the end, or the fear of death. 7 And so the classical virtues, such as courage, magnanimity, or wisdom, give way to peaceableness as the greatest good. In the state of nature, the war of all against all prevails; but under the artificial human world of the social contract, humans will become citizens by giving a monopoly on violence to the figure of Leviathan, a powerful monster that lives at sea. To make explicit what is implicit, Leviathan cannot be merely the master of a given nation or kingdom, since then the state of nature would still prevail amongst nations and kingdoms. For Hobbes ’ City of Man to be built, Leviathan must rule all nations and kingdoms and truly be the prince of this world. He is the “mortal god” created by the mind of man.
The ideas of Hobbes were elaborated and developed by John Locke, the philosopher of the American founding, and by Adam Smith, whose Wealth of Nations founded the modern science of economics. Locke and Smith sought to construct an ever greater Leviathan, in which systems of checks and balances in the sphere of politics, or global trade and commerce in the sphere of economics, would rule the world.
In the self-understanding of nineteenth-century Britain, history culminated in the empire of commerce. The British Empire justified its existence because it guaranteed a sphere within which free trade would take place among the nations of the world. 8 Because trade and commerce occurred at sea, Britain would remain the leading power so long as it ruled the sea. It is no coincidence that the naval armaments race with Wilhelmine Germany foreshadowed the eclipse of globalization in the terrible years after 1914.
The Continent shared the ideal of globalization, without the capitalist part. Hegel dreamed of a final synthesis in which conflict would cease and give way to a peaceful and homogeneous world. He believed this took place at the Battle of Jena in 1806, in which the forces of the universal Enlightenment prevailed over the old order. 9 Marx placed these ideas a bit further into the future, when the liquidation of all classes would bring about the workers ’ paradise. Even Nietzsche, the least peaceable of the philosophers, thought it best for the blond beast and the natural aristocracy to dominate the planet from Europe.
This brief survey hints at the critical importance of the globalization project to the modern West. At various points, like a mirage in the desert, the goal of the project has seemed almost within reach, only to fail or be postponed every time, at least thus far. For the past three centuries, the great rises and falls of the West track the high and low points of the hope for globalization. And whether by cause or effect or both, the abstract hopes of a global order also are mirrored in the virtual world of money and finance. The rises and falls of the globalizing West have been tracked by the peaks and valleys of the stock market. Almost every financial bubble has involved nothing more nor less than a serious miscalculation about the true probability of successful globalization .
One already can discern this theme in the first great financial manias
