The Thousand-Year Reich Fallacy

Nothing is more permanent than “temporary” arrangements, deficits, truces, and relationships; and nothing is more temporary than “permanent” ones.

~Nassim Taleb

The Nazi regime in Germany, which was early on referred to as the “Third Reich”, was also popularly referred to as the “Thousand-Year Reich”, the implication being that it was a regime which would stand the test of time and last over a period of many multiple generations.

An intellectual problem I’ve always had with this is that the seemingly ever-lasting circumstance has an explicit, definite end point. In the case of the Thousand-Year Reich, that end point is 1,000 years from the time it was established– and then what? More importantly, why only 1,000 years? If the Thousand-Year Reich represents some kind of political ideal, how would it be possible for the society underneath it to transcend these arrangements over any conceivable period of time? And what changes in circumstance would lead them to do so?

As an observer of financial markets and business cycles for going on a decade, I see the “Thousand-Year Reich Fallacy” with some frequency. For example, a market prognostication might be made in the following form: “Earnings growth is strong and sustainable, rather than seeing the S&P 500 tail off from current levels, I believe it will continue to rise and will be ten or fifteen years before we see a correction.”

Ignoring even the problematic metaphor of a “correction” in this context, I always find myself thinking in these circumstances– and then what? And what is it, 10 or 15 years from now, that finally precipitates this change in price?

The most obvious example of the Thousand-Year Reich Fallacy (which is really just a variant of the hot hand fallacy) lately is the specious reasoning we hear about about Zero-Interest Rate Policy (ZIRP), its longevity and the “new normal” economic paradigm it engenders. Many people, simpleton and sophisticate alike, have reasoned that central banks have painted themselves into a corner with their ZIRP attempts and having arrived at this corner, there is no way out that will not impose enormous social costs to exit, which they are beyond reluctant to effect as a result. The implication is that interest rates will not rise because they can not rise without grave disruption to economic activity.

The incentives of ZIRP and even NIRP (Negative-) are intuitively perverse. Under ZIRP, borrowers pay no costs and lenders earn no return for parting with their money, meaning lenders have become indifferent from the standpoint of time preference, preferring a dollar today equally to a dollar tomorrow. Under NIRP, borrowers are rewarded for borrowing and lenders are glad to pay them for their privilege, meaning that lenders prefer a fraction of their dollar tomorrow to their whole dollar today. Anyone who listens to this realizes that this is not a sustainable arrangement, ceteris paribus, and that studied in isolation they would not willingly behave that way as a lender.

So, the Thousand-Year Reich must come to an end. But when? And why? Here is where the fallacy rears its ugly head, as people will project an arbitrary time frame which seems sufficiently long to hedge against immediate uncertainty, ie, 20 years, 30 years, but they will not then reason about what changes must occur 20 years or 30 years from now that bring ZIRP/NIRP to an end.

For ZIRP/NIRP to truly be the “new normal”, there can not be any end point to it. But it is not anticipated to be the new normal, but only a Twenty-Year Reich. But what then? And why will it remain stable along the way?

The funny thing about the Thousand-Year Reich fallacy is how short of the initial timeline events end up, and how violently the trend unravels. In the case of Nazi Germany, a regime slated to last 1,000 years in fact lasted 12 years, from 1933 to 1945. Of course, it was a horrible 12 years, punctuated by a ghastly death toll, gross destruction of capital and property in Germany and abroad, and enormous political ramifications that reverberated outward from Berlin and into the present day. All the martial glory, all the eternal recognition and all the national greatness imagined at its inception was dashed to the rocks in just over a decade which, for those experiencing it, must’ve seemed like 1,000 plus forever years.

The ZIRP/NIRP paradigm is a similarly crowded trade from a social expectations standpoint. Anecdotally, I have seen that it is believed from shady, proletarian used car lot operators in Appalachian Tennessee, to educated, middle-aged professional bankers on the West Coast. Everyone knows it can’t go on forever, but they can’t see how it will end in the next five, ten or even fifteen years and certainly no one wants to try to imagine what it might be like. It will be truly unprecedented. But it will end, because it must end, and since it will end it’s worth thinking about what it is that will deliver the finishing blow, and why it could be a much shorter Reich than one could anticipate right this very moment.

One Day Your Children Will Comment On Your Blog

I have a funny thought from time to time that I thought I’d share. I don’t think it’s original, someone else has probably pointed this out before and they’ve probably said it better than I have, but here it is anyway.

I’m not writing this blog just for my pleasure or the pleasure of my readers, but for my children (and grandchildren). In a general sense, the internet is immortal and the words jotted down and thoughts expressed will in most cases remain on the web long after they’ve served their immediate informational purpose and even long after we’re dead and gone.

The work of future biographers and historians will be made infinitely easier by the public record-keeping of their eventual subjects, who have poured out their thoughts, dreams and anxieties for all to see on the web. The retention and archive of years and years of people’s personal electronic communications via e-mail in the cloud will further ease the work of these chroniclers.

But it is our children, for most of us unborn or currently incapable of understanding our written thoughts, who will be offered the strangest privilege by getting to look back on our personal, recorded thoughts. Up until now, most adults have never had to face children who had ready evidence of their past imperfections, mistakes and occasional cluelessness. No adult ever had to have the tables of parenthood turned on them as their children were unable to effectively watch them “grow up.”

The internet has changed many things, many businesses, many social activities. It is hard to imagine most traditional rules and styles of parenting surviving the internet completely unscathed. How will authoritarian, paternalistic, “because I said so!” parenting stand in the face of children who can read their parent’s blogs?

How will the State convince us of its version of historical events when we can all watch them ourselves on YouTube and make up our own mind about what happened and what was the significance of it?

For bloggers in their 40s and 50s, learning about the consequences of children who can read their blogs is probably becoming a weekly occurrence. For bloggers in their 20s and 30s, this experience is likely yet to be had though inevitably it will.

Rather than end my commentary with a warning like, “Be careful, your children will be watching you!”, instead I want to encourage readers to be fully cognizant of the opportunity to communicate with future generations in a powerful, new way. If your mission is to spread knowledge and understanding, smile knowing that what you’re writing and what you’re building will one day be enjoyed by your children, as well.

Be thoughtful, and they’ll be thankful!