Nate Hagens Scenario Thinking
Holding multiple viewpoints on possible outcomes is useful to retain agency in times of uncertainty such as now. From Nate Hagens.
Trasnscript
Good morning, friends. This is the first episode in a new series I'm calling How to Think About the Future. There are going to be four parts and I'm going to lay out the structure of all of them in a moment. But first, why am I doing this series? If you've followed The Great Simplification for any length of time, You have probably noticed that we cover a lot of different topics. Energy, and geopolitics, and ecology, and increasingly AI, and economics, and mental health, and food, and governance, and plastics, and nuclear, meaning, community. Pretty much everything that I think relates to the unfolding more than human predicament. And every single time we put up an episode on one of these topics, we get a predictable, kind of comment. Maybe you've left one yourself. Or maybe you've read some of them and quietly agreed, and it usually sounds something like this. Why are you having a nuclear expert on? Nuclear is too late and too expensive to matter. Or, why are you focusing on plastics and toxics when the global economy is gonna roll over anyways? Or why future renewable energy people, and we both know renewables can't replace fossil hydrocarbons at the current scale. Or climate isn't even in the top 10 risks that people are worried about, so why are you spending so much time on, on that and other environmental issues? Or dozens of other, comments along the same vein. You get the point. I read these comments, though my staff tells me not to, and I take most of them seriously because that's how I roll, for better or worse. And each of these assertions comes from someone who is likely settled on a particular flavor of the future and is framing Most everything else against it. If you've decided that economic collapse is imminent, then conversations about long term ecological restoration feel, like a luxury. If you decided AI is going to change everything, then conversations about soil biology feel sort of Amish or, quaint. If you've decided that global heating is some socialist hoax, then climate focused episodes or global cooling things feel like a waste of your time or worse a loss of credibility for this platform. Not only do I understand this impulse, I also notice this tendency in myself, though less so now, it's human nature. It used to madden me but now I get it because there is an efficiency to the human animal, to have a single storyline in our heads. It tells us, as biological organisms with finite lifespans, what to pay attention to and what to ignore. And in doing so, it saves our cognitive effort and lets us sort out the world quickly to get about our day. But after 20 plus years of observing and rolling this all around in my head, here's what I've come to think. I don't know what future is coming. And neither do the commenters. No one does. Let me state this in a more direct way. My own base view, based on energy, debt, ecological, and geopolitical trends, is that the global economy is likely to hit a wall in the relatively near future, and that there's a meaningful probability that one of the next two recessions ends up being a depression and will involve chaos and reform in the debt and currency markets of developed nations. That's the middle of my distribution and I've held that view for quite a while and the recent data continues to reinforce it. But I hold that view with humility because firstly, I could be wrong. And secondly, even if I'm right about the broad direction, the way it actually unfolds creates branching possibilities I could not predict in advance. And that same financial wall could lead to managed simplification or, massive authoritarian consolidation or to chaos. or to a hundred different things, in between, because knowing that some sort of wall might be coming doesn't tell us which side of it we end up on. And I have to say that holding all of this is hard. It is constitutionally and emotionally challenging. expensive, The Only Authentic Response and at times exhausting. And the reason I do this work the way I do, I read the papers and having guests on from so many different domains and fields, is because I've come to think the only authentic response to our situation is to see it as clearly as possible and then find a way to act, at least directionally anyway. And that's why I'm doing this series. Scenario thinking has become my way of doing that, and it's how I stay, well, that and a bunch of other guide to staying human practices, which is another series, but scenario thinking is how I stay functional in the face of information that could otherwise be paralyzing. It's why I keep having all these conversations, nuclear and plastics and AI and renewable technology and governance and mental health. I have them because each is relevant to some plausible future. And I don't know which future we're going to be living in. And the viewer who tells me that nuclear is irrelevant, Might be right. So might the viewer who says that soil ecology and global cooling are the only things that matter. So might the viewer who's focused on AI or renewable tech. The honest position is that each of them is holding part of the picture, but that the picture is much bigger than any of us can see alone. I do hold my base case view with some confidence. But also with some humility, because I know that humans, and I am human, tend toward overconfidence. So I want to do something different in this series. Instead of saying, okay y'all, this future is coming, here's how we prepare for it. I want to take a step back and ask a much more relevant question. How do we think about the future when many futures today in early 2026 are still plausible? How do we plan and then engage when we genuinely cannot predict? Okay, so this series is going to have four parts. Today is part one. Before we go into any specific scenarios, I want to talk about how to even hold the future in our minds at all. when there still are many plausible futures. Part two is going to be about scenarios. I'm going to lay out four simple grids that capture the main dimensions. of our coming lived experience, economic direction, power and distribution, geopolitics, and earth systems. And as I mentioned in the, diagnosis to action, frankly each one of those will have a two by two grid that I previewed. Part three will be about stacks. of these various scenarios. That's where I'll combine one subquadrant from each of these grids to create a composite world, because real futures will arrive as combinations of these domains, not as like single discrete variables. And I'll, I'll highlight four of these possible worlds in a vivid enough way that we feel the difference of how it might be to live inside one versus another. And then finally part four will be about shortfall risk and responses to all this that are robust across scenarios. That's where we can talk about how we can plan when we can't predict and what stays robust across multiple futures and what we should Protect and work towards regardless of which future arrives. Okay, let's get into it. the first thing I want to talk about is something that I've Complex Systems and Current Events been watching with increasing frustration over the past few weeks because it's the part most people in leadership and the media and Wall Street, get wrong and the Iran situation has been making my head explode. Most people think about future challenges as if they are independent problems sitting in separate buckets. Climate problem over there, politics problem over here, technology problem somewhere else, energy debt. Each one. gets its own department in our minds, and its own experts, and its own set of solutions. But as viewers of this channel know, these are not independent problems. They are coupled systems. They interact and amplify each other, and often show up in our lives together. Energy, as we are learning, clearly affects geopolitics, and geopolitics then affects Supply chains, which then affect inflation, which then affects political legitimacy. Legitimacy then affects what policies are possible, and policy affects, in the short or intermediate term, ecological stress and impact. And then full circle, ecological stress affects energy, food, water, and everything else downstream. Though most people are yet unaware of this last point. so, we're seeing, because of the Hormuz situation, this chain of relationships unfold right now. A, unwise, in my opinion, military decision in late February, cascaded within weeks, into an energy crisis, soon to be a fertilizer shortage, soon to be a food and security, threat. and probably political legitimacy challenges in multiple governments. And in my opinion, an increased chance of a financial and currency sort of, reset. These things are connected. So if risks are correlated and systems are coupled, then we cannot plan for challenges one at a time. We have to think in combinations. And, you know, I learned this way back in the oil drum days. It's why two people can be looking at real dynamics and demonstrably verifiable facts, and still come away with very different pictures of the future. One person is tracking climate, another is tracking AI or energy or debt. And these people are all seeing real things, real data, but they're just holding different slices. of a coupled system, TGS 101. So this coupling also changes how complex systems behave, because complex systems do not move smoothly, they move in fits and starts. You've probably heard the phrase, I've mentioned it, sometimes decades happen within weeks. Because in the real world we have periods of stability, and then something breaks, or something locks in, or cascades. And then the new range of possible next steps changes, sometimes overnight. This is true of climate and earth systems for sure, and of political systems, and of financial systems, and ecosystems. And the pattern that ecologists see, and those of us that are paying attention, is stability, then And the phase shifts are where the big changes come. Part of what makes this all hard to, visualize and plan for is something ecologists call path dependence. Once you're on a Phase Shifts and Path Dependencies particular track, the cost of that path of switching, of moving off that track rises. Decisions, compound infrastructure that gets built for one energy system and then it becomes expensive to rebuild for another. Political alliances solidify and economic structures over time create constituencies that then defend themselves. So I think the future is only partially shaped by what happens next. But a big part by what's already been locked in by previous choices, even choices that didn't feel like choices at the time. This is called path dependence. The other thing complex systems do is cross thresholds, gradual pressure, then a sudden shift. Ice sheets work this way. Soil systems work this way. You push and nothing seems to change. There's stability and then suddenly everything changes at once. And the thing about thresholds or tipping points is that we usually can't see them until we cross them. This is why people, including high paid analysts and consultants who extrapolate the future from recent trends often get blindsided. because they assume a linear relationship between cause and effect, but the systems that matter most are the non linear ones. They have thresholds and feedback loops, and they have moments where, all of a sudden, the rules change. And all of these systems ecology concepts loom right now very large in the human ecosystem. So when we think about the future, the current trend lines aren't the most important things to understand, but instead it's the conditions under which systems might shift from one regime to another that are important. So I think instead of focusing on what is the most likely outcome here, A better question to explore is what are the different regimes or flavors this system could shift into? What are the things that would cause each shift? That's what good scenario thinking Forecasting vs. Scenario Thinking tries to capture. This is where the real problem with how most of us think about the future rears its head because most of us are trained to hold one storyline in our heads at a time. We disagree on facts, sure, but more deeply, we disagree on what kinds of thing the future even is. One person is holding a clean storyline in their head, another person is holding a different storyline, and then arguments ensue as if only one of them can be true. But most of the time, those storylines actually are not competing, they're just incomplete. People are looking at different layers. of the same system, or different time horizons, or different aspects of things they care about, the world. And then the arguments that mushroom are then mostly people defending their slice rather than attempting to see the whole picture. Please believe me, I have observed this thousands of times. And there are reasons for it. Most of us are trained almost from birth to think about the future the way that we think about a forecast. A single line on a chart, a best guess, tomorrow's weather, or next quarter's earnings, or how long it's going to take you to get to work on Thursday. Forecasting does work, For narrow, short term, well understood systems, like predicting the weather tomorrow versus a month or a year from now. But forecasting does not work for complex, long term, coupled systems. where surprises dominate. And the future of human civilization and the biosphere on the planet Earth circa April 2026 is the most complex, most coupled, most surprise prone system we have ever tried to think about. In contrast, a scenario is a different kind of tool altogether. A scenario, effectively is a coherent mini world. It's a set of conditions that hangs together well enough for us to ask practical questions about it and inside it. What would be scarce? What would be abundant? what would be rewarded and punished? What kind of institutions there would survive or even thrive? What kinds of failures in that world would be hard to recover from? What would the daily life feel like for people who live there? The shift. I'm asking you to make, with this series. is for more of us to move from forecasting to scenario thinking. From trying to be right about the future to being prepared for several versions of it and then contributing to the better ones. And yeah, this, shift is probably harder than it sounds. It's taken me over a decade, to think this way and I still fight it at times. I'm better than I, 10 years ago. But there are real reasons people default to single story thinking, because it's human nature to default to single story thinking. As I've said before in various Franklies, our nervous systems, really want certainty because holding multiple possibilities open at the same time is metabolically expensive for our bodies and cognitively hard. And actually, physically, emotionally, it feels worse because our minds reach for resolution on an issue. Because resolution allows the mind to stop working so hard and spending ATP and energy. Furthermore, and I know this quite deeply as well, careers and identities attached to these narratives. So if you built your professional life around green growth, or techno optimism, or peak oil, or collapse awareness, or colonizing Mars, admitting that other futures are plausible can feel very much like a threat to your identity, not only to your analysis. yeah, I've learned from reading the comments on TGS and in real life, and back in the day in the oil drum, that people defend their futures much the same way they defend their families. And, Institutions reward confident stories. Nobody's going to get funding for, I'm not sure which of these six futures we're heading into, and here's how should we should plan for all of them. You get funding for, here's what's coming, and here's the solution I'm selling. And the whole incentive structure of our culture pushes towards certainty. False certainty, usually. So scenario thinking probably has to become a deliberate practice. It runs against the grain of how we're wired and how we're rewarded and how our current culture, operates and is incentivized, but it produces better thinking. And right now in this moment it produces thinking relevant to our survival and thriving and better pathways than the default. I think as an aside I'll mention that there's an older version of this religion and for most of human history almost every person on earth was raised inside A single story about where the world came from, where it was going, what their place in it was, because it was held by everyone around us. It felt less like a story and more like reality. I'm not saying this to bash religion. some of the people I respect most are religious, like a recent or soon to come guest, Ian McGilchrist. And some of the most grounded responses to what's coming are happening inside religious communities. But single story thinking is so deep in us that it was the water we swam in for most of human history is the default setting of the human animal. Holding several plausible futures at once is something we've mostly never asked our nervous systems to do consistently. So, underneath today's trends and data, there are stories, and the story that progress is the natural shape of the human experience, that humans are separate from nature, that more stuff is better. These stories shape what people think is possible more than any of the data. that we're actually looking at. I'm going to come back to this in the Staying Human series, but for now just notice that the future you think is plausible depends partly, considerably, on which deep stories you are already holding. I think this is the moment we, lots of us, hopefully many of you watching this program, might have to hold multiple plausible futures. In this liminal space of our potential species level, transition, right of passage, in order to change the initial conditions of the future. Okay, if the future is a space rather than a point, And if the systems kind of lurch and stagger rather than move smoothly, and if risks are correlated rather than independent, what are we actually trying to do when we model and think about the future? This is where I'm going to introduce a concept that I first learned way back in the day at Salomon Brothers when managing client portfolios. And one that will, kind of act like a glue for the rest of this series, it's a concept called shortfall risk. Shortfall Risk In complex systems, the biggest danger is rarely the average outcome, it's the shortfall risk. Shortfall is when something essentially drops below, something important, essentially drops below a certain threshold and doesn't come back, or at least not easily. On Wall Street, it was a minimum financial return needed to cover certain expenses, but it also applies to food system reliability. grid stability, clean water access, social trust, the capacity of, governments, topsoil, and nature, there's a ton of them, pollinator populations, soil, stability, In human systems, the nuclear, taboo, democratic institutions, there are lots of essentials in our world that we have come to take for granted right now are facing a risk of shortfall. And these things all share a common future. They are hard to build, slow to accumulate, and once they fall below a certain level, they don't bounce back on any timeline that matters for people living through that period. A loss of our topsoil would take centuries to rebuild. You deplete a fossil water aquifer, it may never refill on human timescales. One thing prominent in our minds today, we break social trust below a threshold and coordination might become nearly impossible for like a generation. Something on my mind as we cross the nuclear use taboo and proliferation incentives would mushroom overnight. Pun somewhat intended. So this all creates, a type of fundamental asymmetry in our planning because some losses are recoverable. You can lose money and make it back, usually. You can lose convenience or comfort and then you adapt your life to that. But other losses would. be effectively permanent. And good scenario thinking and the resulting planning that comes from it is about protecting the things that cannot easily be rebuilt across the range of plausible futures. Okay, so here's what this series is going to attempt. We're not going to be trying to pick the correct future. We're trying to do something, in my opinion, more useful and probably more difficult. We're trying to expand. our perception. So we see more than one plausible world at the same time, and among other things, thus become harder to be surprised in the process. And we're also trying to identify what things are coupled, so we can see how dynamics in one domain will amplify dynamics in another. And we're trying to identify the shortfalls, the irreversible losses, And the thresholds that we cannot afford to cross. And, we're also trying to build, what I'll explain in a future video, robustness that transfers across multiple futures. It's kind of like a portfolio management tool instead of betting everything on one outcome. Conclusions Into Part 2 It's a lot. I'm looking forward to this actually. I, haven't, I've schematically, drawn these things out and, you know, with all these Frankleys, I, it's almost like a compulsion, like one of my ducks laying an egg. I have to get these out because I feel they are what's really relevant to our current moment. I wanted to do that oil 101, 201 series rather than something else because we needed like a primer there. This series is like an egg, that I, need to get out. Don't know how that metaphor will land, but I will close with something personal. one of the reasons I am doing this series is that I talk to a lot of people on the podcast, in emails, at events, a lot of people I've never met but who I immediately feel a kinship with because they've been with this work for years or decades. And what I'm hearing Used to hear it, now I hear it more, over and over, is that people now feel overwhelmed. They feel that the future is going to be different than the past, but somehow they can't get their arms around it. And the prominent cultural narratives are very strong, and they're either everything will be fine because technology, or everything's going to collapse. And I've come to not only accept, but to clearly see. that neither of those is useful or helpful, and neither is probably accurate. And what happens is both of these lead people to check out. Some check out because they think it's just all going to work out. Others check out because they think nothing can be done, and either way nothing happens. I believe scenario thinking is a potential antidote to both because it says I don't know which future is coming, but I can prepare and contribute to a range of them. I can predict what matters most. I can build capabilities that transfer across these different worlds, and I can actually do that starting today. Starting locally with the people around me, with things I can see and touch and that matter to me. And of course that's different to everyone watching this. Okay. So that was part one, the aerial view. how do we hold the future? Instead of a data point, more of a landscape of interacting conditions, and not just a single story. And also, hold the future as a navigation challenge. For me, for all of us, for our culture, ultimately, for our species, ultimately. And for the landscape of futures to be something that's perceived clearly enough that we can act inside that. With our eyes open. Part two, we're going to make this a bit more concrete on scenarios. I will see you then.
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