Cygnus atratus, courtesy of wikipedia.
Every so often, a reader may have the good luck to stumble on a book that articulates things he or she has been musing about.
That happened to me a while back when I listened to a recorded version of The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb. Taleb's background is part philosopher, part trader. While I don't know if I'd be on the same page with him on every economic policy issue, I'm totally down with his general view of how the world works--to wit, randomly and unpredictably.
The title in itself is significant. For centuries, it was an article of faith in the western world that all swans were white--until a species of black ones was discovered in Australia. Actually, though, it would only taken one mutant black swan to falsify that whole dogma.
Taleb goes from there to talk about Black Swan events, i.e. unexpected happenings that have big consequences. Such an event has the following attributes:
First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.
I stop and summarize the triplet: rarity, extreme impact, and retrospective (though not prospective) predictability. A small number of Black Swans explain almost everything in our world, from the success of ideas and religions, to the dynamics of historical events, to the elements of our own personal lives...
Think about it. What were the odds that a giant meteor 65 million years ago would have ended the dinosaur's winning streak? Life and history are full of low probability/high impact events. These can be either good or bad but they can't be perfectly anticipated
I guess you could say that's what makes things interesting. It also means that we need to recognize that there are a lot of vitally important things we just don't know.
NOT A BLACK SWAN EVENT. Who could have known about the Wall Street bubble? Lots of people, argues economist Dean Baker. While we're at it, here's another item by Baker that takes a broader perspective on the crisis.
IT'S ONLY MONEY. The Bank of England estimates the cost of the August financial meltdown to be $2.8 trillion. So far.
THE NEXT WAVE of the economic crisis is likely to hit credit cards.
THE FIRST DIXIE CHICKS. Here's an item from the Smithsonian about the Salem Witch Trials.
GOAT ROPE ADVISORY LEVEL: ELEVATED