At a time when people and economies globally face challenges and threats of historic proportions, who could be better positioned to provide context than the eminent historian whom The Times described as the most brilliant of his generation? The fact that Professor Niall Ferguson’s specialty is economic and financial history made him the ideal guest to address CFA Society Toronto’s signature annual event, which was held virtually for the first time (due to pandemic restrictions) on October 5. Ferguson’s commentary provided the details of historical context, thought-provoking insights, and clarity of presentation that are his hallmarks, making for an outstanding evening.

Since publishing his book, The Pity of War (1998), in which he argued that it would have been better for Britain and Europe if Britain had stayed out of World War I, Ferguson has become famous as an original, outspoken, and erudite author, qualities that have shaped his sixteen best-selling books –many of which have been adapted into television series including ‘Empire’ (2003) , ‘The War of the World’ (2006), ‘The Ascent of Money‘ (2008), and ‘Civilisation’ (2011). Ferguson’s latest book, Doom: The Politics of Catastrophe, is a history of disasters that puts our current experience of the COVID-19 pandemic into perspective. Ferguson observes that, of the major disasters in human history, the biggest have been pandemics and wars. He notes that catastrophes are random, rather than cyclical, and that attempts to predict them usually fail because they are undermined by their inherently random or power-law distribution and by our myriad cognitive biases.

Ferguson shared that, while it is too soon to be sure, the COVID-19 pandemic seems likely to be a medium-sized disaster in historic terms—greater than the Asian flu of 1957–58 and close to the Russian flu of 1889–90, but a small fraction of the scale of the influenza pandemic of 1918–19 and HIV/AIDS in the 1980s and 1990s. However, the economic cost of this pandemic has been far greater than the actual infection and death rates would lead one to expect, due to government-mandated lockdowns and reduced mobility arising from fear in the general population. Moreover, the consequent over-stimulation, both fiscal and monetary, will likely lead to financial problems in the future. 

Ferguson argued that, through their poor understanding of pandemics, news media contributed to public confusion and tended to attribute too much responsibility to the incompetence of our leaders when in fact a common feature of all disasters tends to be the combination of human errors in operations and management. During the COVID-19 pandemic, the public health bureaucracy in the US and the UK failed, and dissemination of fake news about the virus via internet platforms led to poor and sometimes harmful public behaviour. He noted we have no way of knowing what the next disaster will be, but we should try to make our network structures more resilient by better understanding them and addressing their capacities for dysfunction.

On the issue of climate change, Ferguson does not believe that history gives us much ground to hope that a global problem of such magnitude—requiring enormous and costly cooperation and trust among all major countries of the world—can be readily addressed. He believes that we are still approaching the issue with too much political posturing, that we are rushing into renewables before we are remotely ready for them, and that too many unrealistic goals have been set that lack fully thought-out and costed action plans. The roles of natural gas and nuclear power in bridging a transition to a green future are being under-emphasized, and a hard reckoning of the kind that sparked the “gilets jaunes” movement in France is likely to come when expensive and inadequate new energy sources are forced on general populations who cannot afford and/or refuse to pay for them. As China continues to add to its carbon footprint while claiming to be committed to reducing it over the long term, the prospect of growing politicization of the issue is very real. Ferguson argued that Canada, with its large energy resource base, should be a prominent leader in guiding the world through a realistic transition to a greener future because “we need adult voices in the room” (over to you, J.T.!).

Ferguson believes that we are at the end of a global economic cycle fuelled by China’s growth, which he regards as currently overstated by International Money Fund and World Bank statistics. In his view, China’s goal of becoming the largest economy in the world is not likely to be achieved. Demographics suggest that the Chinese population could halved by the end of the century. He suggests that, in the internet age, a small group of China’s unelected leaders cannot hope to indefinitely control the lives of 20 percent of the world’s population by heavy-handedly intervening in their personal and commercial lives. 

In Ferguson’s view, US–China relations are likely to deteriorate (a view shared by the event audience, of which only 16 percent predicted that US–China relations would improve) and that China poses a real threat of war over Taiwan. The West’s weak response to Russia’s seizure of Crimea sent an unfortunate signal regarding its reluctance to respond to aggression overseas, and the fall of Afghanistan has exacerbated this message. All investment asset classes, except cash, would suffer massively, he believes, should a Chinese invasion of Taiwan occur. 

Ferguson also believes we should not acquiesce to a new totalitarianism of ubiquitous surveillance and regulation in the name of public safety, as totalitarian regimes have caused some of the worst disasters in history.

Initially a skeptic, Ferguson believes that cryptocurrencies can play a role as a store of value for investors and are a kind of option on digital gold for the new online generation, which is unlikely to be attracted to real gold as it has proven to be a very uneven inflation hedge and a poor performer in relation to cryptocurrencies. Bitcoin’s price performance relative to gold was surprisingly resilient when China recently announced a total ban on it. In Ferguson’s view, attempts led by China to create a digital version of an existing national currency have limited prospects for success due to the intrusion into people’s private financial affairs that such state-run digital currencies facilitate. 

In the sphere of technology, Ferguson believes that government action lies ahead to curb the enormous power of social media giants, with Mark Zuckerberg and Facebook (the former regarded by many in Washington as a modern-day synthesis of John D. Rockefeller and William Randolph Hearst) potentially the first targets.   

Finally, Ferguson believes that “something wicked this way comes” in the bond and stock markets, as central banks across the world and the financial industry generally have been greatly underestimating the current risk of inflation (only 14 percent of the audience projected consumer price index inflation at above 4 percent in two years time). At the same time, the strong interest in cryptocurrencies reflects widespread fear of a loss of purchasing power among the public. When the US Federal Reserve and European Central Bank come around to sharing the public’s sense that a recurrence of 1960s-type price rises is in the offing, a huge “taper tandem” is likely to ensue, he fears, making cash and possibly cryptocurrencies the only asset classes not badly harmed.

CFA Society Toronto’s first Annual Forecast Virtual “Dinner” provided an exceptionally large serving of “food for thought” to make up for the absence of the traditional fare. It reminded everyone in attendance that history can illuminate both the present and the future in vitally important ways, and that we overlook them at our peril.