Decisive Events

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Decisive Events

An event with persistent consequences that influences the economic activity in significant regions of the world, and that marks a shift in structural conditions for investment, trade, relative prices, or central state policy, is termed a decisive event. Because economic reasoning is concerned with an explanatory-factor approach to empirical regularities, decisive events often appear as abrupt and depth breaks of these regularities. For this reason, the initial occurrence that unleashes the full sequence of changes is perceived as the fundamental turning-point moment, and is often used like a marker to outline time periods and differentiate chronologies. The idea that once a turning point is reached, a cascade of irreversible consequences will follow, is akin to the representation of thermodynamic systems that are no longer in a state of equilibrium. In reality, decisive events in economic terms are equated in the short run as moments of system disequilibrium.

Within this framework, what matters is not so much the intensity, breadth, and pace of the turning-point event, but rather how the system responds to changes in the environment. In historical terms, this entails the distinction between train and explosion, between the narrative of singular occurrences and the mechanisms that generate one particular outcome: When the stock market fell almost exactly the same amount on almost exactly the same dates in 1929 and in 1987, why did the first collapse lead to a world crisis, but the second have only limited consequences? The answer is that a stock-market crash is not enough to trigger a depression. There must be some causal mechanisms at work that contribute to spreading a single initial occurrence in a sequence of events across sectors of activity and across nations. The primary propagation channel of the 1929 crash could have been the banking panics, the postwar system of the gold standard that spread the shock by indicating that deflation policies were the appropriate remedy for the ills of the 1930s, or both. The important point to note is that decisive events join together a turning-point occurrence and a powerful propagation mechanism.

World Wars I (1914-1918) and II (1939-1945), the stock-market crash of 1929, the oil shock of 1974, and the fall of the Berlin Wall in 1989 constituted the most decisive events of the twentieth century, from an economic point of view. Each of these episodes was meaningful to historical actors before they became meaningful as objects of research. Narrative memory and intrinsic plot formation therefore established preliminary grounds and agendas in which the analysts developed their work. To most contemporary observers, the abrupt shifts were felt with some uncertainty and distress, provoked by the dense concentration of facts in short periods, and by the need for personal adjustment to a changing world. Hence, the thick time of decisive events appears cognitively and emotionally as an overload of data and occurrences that disturbs the degrees of rational belief. Under these conditions, it becomes increasingly difficult to estimate some hypotheses, given the evidence, or to forecast possible tendencies of the future.

SEE ALSO Berlin Wall; Deflation; Depression, Economic; Economic Crises; Inflation; Organization of Petroleum Exporting Countries (OPEC); Stock Exchanges; Uncertainty; World War I; World War II