On Herman Kahn

He has been all but forgotten now, but Herman Kahn was famous in the mid-century for his work on nuclear war-fighting strategy for the RAND Corporation. (He was one of the inspirations for the eponymous character in Stanley Kubrick's 1964 film Dr. Strangelove.) Kahn's bestselling and controversial book On Thermonuclear War was a sensation for a period of time, but he got bored with nuclear strategy by 1965 and turned his attention to growth and development, and particularly to rebutting the neo-Malthusian, Limits to Growth thinking that was growing in popularity at the time.

He would probably be better known if he had lived longer, but he was obese and died in 1983 at age 61, just as President Reagan was inaugurating the boom that Kahn forecast in his book The Coming Boom (see our Q1 note). We just finished reading all of his non-military books in preparation for an essay about cornucopianism, and since he was a very interesting character in his own right, we thought we would outline four interesting themes that come up in his work.

Cornucopianism
While in his time Kahn was best known for his books and lectures on nuclear war and deterrence, that feels about as relevant today as Alfred Thayer Mahan's thoughts on sea power. As time goes by, what seems most interesting is that he was a leading cornucopian thinker at a time when people were despondent about overpopulation, resource scarcity, and the environment. (Including, ironically, fears of global cooling.)

Kahn would be emphatically against the idea of “peak” anything when it comes to resources. He would not have been one for peak oil, or the book Twilight in the Desert by Matthew Simmons. The economist's viewpoint, and the way that Kahn thought, is that humans do not "run out" of resources. Rising prices of any good or service encourage increased production, conservation, and innovation towards both substitutes and towards better production methods.

For any problem involving scarcity that Kahn considered, he always tackled it with a three prong approach. He would make lists of all of the possible ways that more of the resource could be found or extracted more economically. He would think of potential substitutes for the resource, or for the ends that the resource was being used to satisfy. And he would think of ways to conserve the resource.  

Amazingly, in his book The Next Two Hundred Years, he wrote that, "once an effective process for the extraction of oil from shale is developed, the total available supply of fossil energy could be more than quadrupled." Keep in mind that he wrote that in 1976. He just assumed that eventually people would figure out how to extract oil from source rock instead of the reservoir rock, and forty years later the production of "tight" oil from source rock became meaningful. Now the production of this oil using horizontal wells and hydraulic fracturing has surpassed conventional oil production in the U.S.

If Kahn had ever gotten interested in commodities investing, his mantra would have been to sell shortages and buy gluts. Note that absolutely nothing in cornucopianism says that you cannot or will not have episodes of rising commodity prices. Remember the book Capital Returns about industry capital cycles: over-investment in capacity leads to low profits and bad times for an industry, and under-investment leads to high profits and good times. Kahn's view was that commodity prices tend to fluctuate wildly around a trend that is downward sloping in real terms.

He thought that there was no substantive basis for the oil crisis of the 1970s, since "there was no physical shortage of oil, only a cartel that succeeded in forcing at least a temporary increase in the price of the commodity it controlled." He thought that it would be even bearish for oil in the intermediate term: "the cartel's moves actually decreased the possibility of future energy shortages" since they encouraged both conservation and production.

The real price of oil did peak in 1980 and experienced a brutal crash that lasted until 1998. The Economist magazine cover story in March 1999 was "Drowning in oil," predicting that the world was likely to remain awash in oil. Sell shortages and buy gluts.

Compromise
Steve Sailer says, "I would encourage intellectuals to try to subscribe to a form of vulgar Hegelianism in their thinking that I've found very useful: If you hold a thesis for what seem like good reasons, and somebody counters with a well-argued antithesis, you have three options: reject the antithesis (the most common), convert to the antithesis (the most dramatic), [or] look for a synthesis that makes the most of both your thesis and the other guy's antithesis (usually, the hardest but most productive)." As John Stuart Mill wrote in his essay On Liberty,

"He who knows only his own side of the case, knows little of that. His reasons may be good, and no one may have been able to refute them. But if he is equally unable to refute the reasons on the opposite side; if he does not so much as know what they are, he has no ground for preferring either opinion."

Kahn was known for saying in debates "I can make your argument better than you can and then I can show you why it's wrong." We have noticed that the best thinkers understand both sides of arguments and have "strong opinions, loosely held." (Bezos and Musk both subscribe to that approach.)

Charlie Munger had the same philosophy. In fact, in reading about Kahn he will often remind you of Munger. Kahn was born in 1922 and died in 1983 while Charlie Munger was born in 1924 and died in 2023. (One big difference between them was that Munger was not cornucopian. He said that "oil and gas are absolutely certain to become incredibly short and very high priced," which is not a view that Kahn would have shared over any longer-term time period.)

Kahn never seemed particularly partisan or absorbed by the political issues of his time. And lately we have been thinking about the importance of compromise and coalition building. Our good Texan friend points out that the reason Texas is going so strong, unlike the other southern states, is that Texan spirit has never been crushed by losing a war. (While Texas was a Confederate state, there was significant Unionist sentiment in Texas, with German settlers in particular favoring free soil and being uninterested in fighting for slavery. Sam Houston opposed secession and was smart enough to know that the North would defeat the South.)

There is a common attitude that we have noticed among those who lose: "I'm right so I don't have to compromise." Those who believe that they do not have to compromise because they are morally right flip the concept of "might makes right," which is true, on its head: "right makes might."

Remember that Charles I seemed to think that a monarch's power was bestowed automatically thanks to divine right and not thanks to the formation and organization of alliances that could deliver superior force against opponents. (Previously.) A king is just one possible device for governance, so after growing tired of Charles the rising English upper middle class tricked the religious lunatics into helping to depose him (and then discarded them).

After battling for half a century (1973-2022), pro-life advocates finally succeeded in overturning Roe v. Wade, with the comically bad timing of releasing the Dobbs v. Jackson Women's Health Organization decision less than six months before the 2022 midterm election. What might have been a referendum on Biden, covid restrictions, and the validity of the 2020 election became a referendum on abortion.

The pro-life advocates amplified that further by conducting state-level referenda on abortion in 2022. This strategy was spectacularly unsuccessful, not only failing to deliver the pro-lifers' primary goal of restricting abortion in staunch red states, but also causing collateral damage nationwide. 

In the 2022 midterm, the Republican candidate for U.S. Senate in Kansas won with 60% of the vote. But that August, the Kansas pro-life referendum lost with only 41%. The pro-life measures were also defeated in Kentucky and Montana. But the hotbutton issue was a get-out-the-vote drive for Democrats, who took full control of state government in Michigan, and flipped the offices of Governor and Secretary of State in Arizona.

Whatever your views on abortion, what is noteworthy for our purposes is that refusal to compromise on abortion was politically costly for Republicans. ("A predicted ‘red wave’ crashed into wall of abortion rights support on Tuesday.") Charles Schumer or Nancy Pelosi could wish for an abortion referendum in every election. The losses of those statewide offices will make it more difficult for Republicans to win those electoral votes in 2024. (And to flip the offices back, since the incumbents count the votes.) The path dependence of politics makes failing tactics more costly.

The key point here is that the pro-lifers never weighed the cost versus benefit of these campaigns, rather they undertook them based solely on the idea that they were morally right. As The Tom File points out,

There remains a segment of the pro-life movement that has a purity-spiraling element to it, much too concerned with do-gooding in other people’s business at a very low return on political capital, particularly in blue areas of the country now that the issue has been de-federalized.

The pro-lifers overplayed their (already weak) hand this spring by coming after in-vitro fertilization, and it looks they are getting thrown overboard from the Republican coalition as a result. We sense a realization among conservatives that pro-lifers are a liability because they have moralistic demands that are impossible to satisfy. (How can you call yourself "pro-life" if you are against late-marrying yuppies having babies using IVF?) Trump has completely walked away from the issue, saying that the proposed six week limit on abortion in Florida is too short ("we need more weeks") and that he would veto a federal ban on abortion if passed. 

The pro-life movement will never again had the relevance that they had prior to Dobbs. The stakes are too high for normal conservatives to be losing elections because of virtue signaling. If your county attorney gets replaced with a Soros puppet because of an abortion referendum, a paroled criminal could harm your family member.

The problem with coalition building happens to be mirrored on the left. Ruy Teixeira wrote an essay ("The Democratic Coalition Is Falling Apart") last year about the problems that the left is having getting their people to compromise:

Despite their dire assessment of the threat posed by Trump, moves to compromise on contentious issues that persuadable voters care about are few and far between. Look what’s happening with the immigration issue that has come to the fore in the negotiations over aid to the Ukraine and Israel. Instead of eagerly embracing a deal to move the aid forward that would include fairly modest reforms to the asylum system and other changes to tighten border security, Democrats are evincing the greatest reluctance to make such a deal. And this is despite the reality that voters, including most persuadable voters, view the Democrats as absolutely abysmal on the issue of border security.

Biden's tax proposals are very provocative towards the wealthy component of the left's high-low alliance. High marginal tax rates on income and capital gains taxes at a time of high inflation operate as capital confiscation; they are in large part the explanation for the Missing Billionaires. The ultra wealthy zip codes in this country voted ~60% Biden, but will the proposal to get rid of stepped-up basis get them to quietly vote for Trump? 

As William Voegeli pointed out in the Claremont Review this spring, whichever party is second-worst at compromising and coalition building will prevail. 

Against Doomerism
There is a great tweet by Conor Sen that illustrates why financial doomers (like Zero Hedge) never win:

Kahn's approach to considering problems was to think of as many potential solutions as possible. Get our a whiteboard or easel or legal pad, and just start writing them down. His two futurist books (The Coming Boom and The Next Two Hundred Years) are, in large part, just lists of all the conceivable ways that the problems that seemed pressing at that time could be solved. This is a high agency mindset. 

There seem to be two key psychological motivations that drive doomer thinking. First, increasing wealth resulting from GDP growth over time can actually be bad for the upper-middle socioeconomic classes. If you are hiring someone to mow your lawn, watch your baby, fix your air conditioner, or build your house, then either there is significant income inequality between you and them or else the cost of it is going to sting. (The way that hiring a lawyer to do something is unthinkably expensive for middle class people.)

The type of person who was advocating Limits to Growth thinking in the 1970s is today looking around the crowded American Express lounge at the airport saying, "this is unsustainable." These are frustrations of mass affluence. (Kahn predicted that there would be plenty of frustrations, mostly psychological, as prosperity became more universal.)

The other doomer motivation might best be described as fear. As we wrote in our review of Trillion Dollar Triage, no one was going to auction American business off during the middle of a pandemic to curmudgeons on the sidelines holding T-bills. But that is what the doomers want: an opportunity that is an absolute gimme. One problem with that is that when it comes it seems too scary, which is why John Hussman has been bearish for 25 years, a time period that has had three major bear market lows. How could he ever buy now? He has painted himself into a corner.

We wonder how Kahn would have invested if he had lived longer. There is some possibility that he would have been a Boglehead indexer. That would be the case if he decided that corporate profits would grow with GDP and thought that indexing was an easy way to participate. But he had a lot of insights (about computing, selling shortages and buying gluts, and mass affluence, for example) that would have been very profitable in public market or venture capital investing. If Kahn had been born just a little later he might have avoided his detour into military thinktanks, which were both a distraction in terms of subject matter (which he did get away from) and a poor business model (which he didn't).

Is there a deep state?
An interesting question is whether - or really, to what extent - there is a "deep state" behind the scenes that is "running" things? Remember that Edward Dutton does not think that there is a secret ruling class with a 100 year plan:

"Dogmatic conspiracy theorists tend to be of low socio-economic status, giving them a sense of powerlessness which is assuaged by the feeling that they have some gnosis about the nature of the world." "We would expect people, due to decreasing intelligence (and thus decreasing logical abilities) and increasing schizophrenia (due to higher mutational load) to be arguing that there was a Satanic elite that was going to succeed in enslaving us all."

As we mentioned above, Kahn did not get too excited about partisan politics. He was a deep state wonk (RAND Corporation from 1948-1961), so maybe he knew the difference between the theater for the rubes and how the decisions were really made. There were a couple of episodes in Barton Briggs' biography of Kahn (Supergenius, previously) that were telling about deep state decision-making.

The first was about the Polaris missile program, the U.S. Navy's first SLBM which went in service in 1961. (It was succeeded by Poseidon and now Trident.) The Navy was envious of the Air Force's strategic offensive capability. Biggs says that the submarine part of the nuclear triad is a bit silly because the SSBNs have to be fired all at once (they give away the boat's location), the boats can't receive radio reliably underwater (so the mission can't be time critical), it was inaccurate (at least in 1961) because of error in the boats' launch location and the dynamics of the underwater launch, and it was expensive (needed missiles, submarines, tenders, and two crews). 

The Navy knew it wanted SLBMs and a ballistic submarine force, so it worked backwards (probably using the help of think tank consultants) to find a mission for them. Given the constraints above, it was only suitable for attacking large soft targets (big cities; countervalue). Biggs says, "Admiral Burke, the chief of naval operations, made a back-of the envelope calculation that reliably destroying 200 cities would require about 600 missiles on about 40 boats, which was about what the Navy could afford." He points out that the Navy had earlier criticized the B-36 because it was only useful for city bombing.

What a silly way to spend tens of billions of dollars. (The equivalent of hundreds of billions today, GDP-adjusted.) The more you see decisions being made by horse trading and log rolling, the less sense it makes to believe that decisions are being made ultra-rationally behind the scenes.