This article is based on a chapter from An Economist Walks into a Brothel, a new book from Quartz economics reporter Allison Schrager.
On Feb. 23, 1991, Eagle Troop, an elite tank unit, crossed the Saudi-Iraqi border. It was the start of the ground campaign of Operation Desert Storm, and the regiment’s mission was to envelop and defeat the Iraqi Republican Guard from the west.
Eagle Troop was led by Captain H. R. McMaster, then a 28-year-old West Point graduate. He commanded Eagle Troop’s 140 soldiers, who were organized into two tank platoons, each containing 10 tanks. Spirits were high among the soldiers; most had never seen combat and were exhilarated to be behind enemy lines. It had been a generation since a major U.S. combat operation. The soldiers were trained for this, but they never expected they would actually go into battle.
The Gulf War was the first American war since Vietnam. Like all wars, the highest ranks of the military went through careful risk planning. The Pentagon ran simulations that tried to anticipate all the things that might happen. They determined which tactics and equipment would minimize the worst possible outcome. To a certain extent, these predictions were based on the last major war, Vietnam, in addition to intelligence on how well armed and trained the Iraqi forces were assumed to be.
Over the next few days Eagle Troop moved farther into Iraq. They encountered Iraqi soldiers who’d thrown down their weapons, some of whom greeted Eagle Troop cheerfully with thumbs-up signs.
On the morning of the 26th, Eagle Troop awoke to a heavy fog that eventually cleared and was replaced by a sandstorm. The storm grounded the air cavalry, which meant the troop lacked the insurance of air support if they were injured in battle and had to be evacuated for medical assistance. They pressed forward, tasked with gaining more ground, and by noon had reached 60 easting. Easting is a measure, in meters, of distance (eastward). By 3:25 pm, they received orders to advance to 70 easting but no farther. While they knew the general location of their target, Eagle Troop did not have detailed intelligence on what they’d face.
The sandstorm raged on as the tank platoon crested a steep rise in the desert, only to be met by a large element of the Iraqi Republican Guard. For the first time since they had entered enemy territory, Eagle Troop came under intense fire. Twenty-three minutes of the most dramatic and decisive battles in the Gulf War followed.
Well-practiced but inexperienced in real battle, Eagle Troop did not break stride. It fired back quickly, prevailing over their enemy. McMaster recalls,“I remember feeling proud of how the Troop reacted. Falling artillery [being under fire] is something difficult to replicate in training but the troopers reacted exactly as we had practiced.”
Practice and training were certainly critical, but Eagle Troop also got lucky. The sandstorm meant no one had good visibility, but Eagle Troop’s tanks had the advantage of GPS technology, so they could still find and then surprise the Iraqi defenses.
Eagle Troop pressed eastward, encountering more Iraqi soldiers. The enemy defense was more formidable than the last, with 30 tanks, 14 other armored vehicles, and several hundred infantry, a much bigger force than Eagle Troop. But Eagle Troop’s superior training, better equipment, and the element of surprise more than compensated for its smaller numbers and unfamiliarity with the terrain.
The fighting went quickly. Eagle Troop destroyed dozens of Iraqi tanks within several minutes and was set to keep moving east. That’s when a lieutenant from command radioed McMaster that he had already gone too far, reminding him he wasn’t supposed to cross 70 easting. McMaster said, “Tell them I’m sorry,” but continued on.
Reflecting on this decision more than 25 years later, McMaster still thinks he made the right choice. Once they pushed beyond 70 easting, they surprised and defeated another Iraqi reserve force that was in the process of organizing for battle. If they had stopped three kilometers back as instructed, the Iraqis could have reorganized and launched a successful counterattack.
Eagle Troop suffered no casualties and defeated hundreds of Iraq’s best soldiers, a much larger force with more than 10 times the number of tanks. This battle, particularly those critical 23 minutes, became known as the Battle of 73 Easting, one of the most decisive victories in the Gulf War.
In hindsight, advancing a few kilometers further may not seem like a big deal, but McMaster’s superiors thought it was and was reprimanded him for it. The experience shaped how he thought about warfare and risk planning. After the Desert Storm he completed a PhD in history, where he researched another war that did not go according to plan, Vietnam, writing a dissertation later turned into a book called Dereliction of Duty.
There are many lessons we can learn from the Battle of 73 Easting. It was one of the last great tank battles of the 20th Century and is still studied by military strategists and historians. But for most of us, it’s best understood as a tutorial about how to deal with uncertainty. When we take a risk, we expect things to go one way, but often they go another way–a way we never could have expected. In the Battle of 73 Easting, when Eagle Troop faced an easier enemy than anticipated. McMaster made the decision to defy his orders and capitalize on his success.
Financial economics makes a distinction between risk and uncertainty. The future is uncertain, while risk is the estimate we make about what might happen. We plan around risk, our prediction of the future. But we can’t predict everything, especially when human nature comes into play. Uncertainty is what we can’t measure and predict, because even the best risk estimate can’t account for everything that might go wrong or right. That doesn’t mean we don’t try to measure risk. Instead, we try to reduce it, and then go forward assuming we know what to expect. Sometimes, however, we take our estimates too literally.
We can see this in the aftermath of the Gulf War. The conflict gave rise to the “Revolution in Military Affairs,” or RMA, a theory that held the latest technology was so powerful it could reduce, or even eliminate, much of the risk in warfare. RMA permeated the Pentagon and was used to justify shrinking the military into a smaller, lighter, more efficient organization. Future wars were planned based on the assumption that technology could make war fast and cheap, without incurring many American casualties. It influenced the decision to invade Iraq about a decade later.
This was only one possible lesson from the Gulf War, albeit a compelling one. But it was the wrong lesson. The better takeaway should have been that you can never predict your enemy. Rather than assuming wars could be managed, it would have been smarter to study the small decisions made by officers like McMaster who knew how to deal with surprises on the battlefield.
I spoke with McMaster weeks before he was named the National Security Adviser to US president Donald Trump, a position he held until March 2018. Before taking the job he was a noted scholar and writer on the risks in warfare and an outspoken critic of risk planning during the second Iraq War. Compared with leading people into combat, joining the Trump administration was a very different kind of risk. Before taking it on, he explained the hazards of risk planning in war.“If you try to plan for everything and think you have too much certainty, you create vulnerabilities,” he said.
The fact that risk estimates fall short is not a reason to abandon them, but it is essential to use them properly. Trying to anticipate risk when you make a decision, big or small, is similar to taking a road trip with a map. The map certainly increases the odds of a successful journey, but it can’t tell you if a truck will smash into your car. You still need to be an alert driver and swerve out of the way of an oncoming truck.
In warfare this means flexibility and well-prepared troops who are empowered to make decisions on the fly. Whether nations at war achieve their goals comes not only from good planning but from planning for the unexpected, and this is where they, and all of us, often fall short. The military prefers to centralize planning to the highest ranks, as with RMA. Centralizing power not only offers a sense of control and order, but it’s a cheaper way to fight a war. Letting commanders decide what to do on the fly requires more training and more troops, which can be expensive and unpredictable. But the US did eventually pay the price. The costs of not having a flexible plan to accommodate a more resilient enemy who had learned how to adapt to the latest technology were ultimately enormous. The US was slow to change strategies and spent years in Iraq and more than a decade in Afghanistan.
The idea that the latest technology can remove risk from warfare and render a fundamentally risky endeavor safe mirrors a similar hubris in financial markets. Before the 2008 crisis, economists spoke about “the Great Moderation,” the idea that policy and risk management had removed the risk of financial crises and catastrophic recessions. Some also argued that financial derivatives and hedging strategies like securitized mortgages had removed risk from markets. The Great Moderation and the infallibility of risk management turned out to be wrong too. A financial crisis few saw coming nearly caused another Great Depression.
Uncertainty is why leverage, or taking on lots of debt, is so risky. If something happens you don’t expect, you may not have any money, but you still need to pay your debt. Taking on more debt is like centralizing power at the highest ranks of the military. Sometimes it works, but if things don’t turn out the way you expect, you are in trouble.
When it comes to finance, just like war, rigidity is where things go wrong. It’s tempting to assume you accounted for everything and then plan for only what you anticipate, but maintaining flexibility is key. And yet, McMaster, a vocal critic on the limitations of risk models, still uses them. He argues the best way to deal with uncertainty is to go into battle prepared and educated so you have the confidence and experience to know when you need to change your plans. The process of risk measurement and management forces us to think through our objectives, what the risks are, and how we can reduce risk. This process also educates us on what we might expect on the ground.
We need to recognize the limitations of risk planning and leave just enough room to cross the lines if we need to. McMaster says if he hadn’t advanced past the 70 easting, Iraqi troops could have recovered and launched a successful counter-attack. Flexibility costs more than rigidity, but it is the only way to ensure you can handle whatever comes your way.