Two Kinds of Black Swans

The black swan is probably the most widely misunderstood philosophical term of this century. I tend to find it being thrown around to refer to anything surprising and negative. But that’s not how Taleb defined it.

Taleb defined it very simply as any high impact surprise event. Of course, the definition of surprise is relative to the observer. To the lunatics at the NYT who push bilge about continuing American primacy, a meteoric decline in America’s standing (probably emerging from some of the fragilities I have identified in the global economic fabric) would be a black swan. It would also be a black swan to the sorry swathes of individuals who believe what they hear in the mainstream media, and from the lips of politicians (both Romney and Obama have recently paid lip service to the idea that America is far from decline). Such an event would not really be a black swan to me; I believe America and her allies will at best be a solid second in the global pecking order — behind the ASEAN group — by 2025, simply because ASEAN make a giant swathe of what we consume (and not vice verse), and producers have a historical tendency to assert authority over consumers.

But black swans are not just events. They can also be non-events. To Harold Camping and his messianic followers who confidently predicted the apocalypse on the 21st of May 2011 (and every other true-believing false prophet) the non-event was a black swan. Surprising (to them at least) and high impact, because it surely changed the entire trajectory of their lives. (Camping still lives on Earth, rather than in Heaven as he supposedly expected).

To true-believing environmentalists who warn of Malthusian catastrophe (i.e. crises triggered by overpopulation or resource depletion), history is studded with these black swan non-events.

From the Economist:

Forecasters of scarcity and doom are not only invariably wrong, they think that being wrong proves them right.

In 1798 Thomas Robert Malthus inaugurated a grand tradition of environmentalism with his best-selling pamphlet on population. Malthus argued with impeccable logic but distinctly peccable premises that since population tended to increase geometrically (1,2,4,8 ) and food supply to increase arithmetically (1,2,3,4 ), the starvation of Great Britain was inevitable and imminent. Almost everybody thought he was right. He was wrong.

In 1865 an influential book by Stanley Jevons argued with equally good logic and equally flawed premises that Britain would run out of coal in a few short years’ time. In 1914, the United States Bureau of Mines predicted that American oil reserves would last ten years. In 1939 and again in 1951, the Department of the Interior said American oil would last 13 years. Wrong, wrong, wrong and wrong.

Predictions of ecological doom, including recent ones, have such a terrible track record that people should take them with pinches of salt instead of lapping them up with relish. For reasons of their own, pressure groups, journalists and fame-seekers will no doubt continue to peddle ecological catastrophes at an undiminishing speed. These people, oddly, appear to think that having been invariably wrong in the past makes them more likely to be right in the future. The rest of us might do better to recall, when warned of the next doomsday, what ever became of the last one.

Critics will note that Malthusians only have to be right once to provoke dire consequences; deaths, famines, plagues. Of course, that is the same logic that has led governments to spend trillions, and trample the constitutional rights of millions of people in fighting amateurish jihadis, when in reality more Americans — yes including the deaths from 9/11 — are crushed to death by furniture than are killed by Islamic terrorism.

But it is true, the scope of the threat posed by Malthusian catastrophe is probably an order of magnitude greater than by jihadis with beards in caves. And of course, groups like the Club of Rome and individuals like Paul Ehrlich will keep spewing out projections of imminent catastrophe.

So what were the real threats to humanity following Malthus’ predictions? Was it overpopulation? Nope. Imperial warfare killed far, far more than any famine or resource crisis in the 20th Century. To the overwhelming majority of the population, World War I — both in its origins (the assassination of an obscure archduke), its scope, its death toll, and its final ramifications (i.e. the Treaty of Versailles, the rise of Nazism and World War II) was the great black swan event, the great killer, the great menace.

Black swan events defined the 20th Century; the black swan non-events of Malthus did not. The true story of the early 20th Century was the decline of a heavily indebted, consumptive and overstretched imperial power (Britain), and the dangers to peace and international commerce as its productive and expansionistic rivals (especially Germany, but also America) rose and challenged her (in vastly different ways).

There are some real environmental concerns like the dangers posed by nuclear meltdowns, runaway global warming (although I believe a little global warming is probably a good thing, as it will keep us out of any prospective future ice age), tectonic activity, or an exotic solar event like an X-flare, but we have no clue what will hit us, when it will hit, and its branching tree of consequences. We don’t have a full view of the risks. In spite of what unsophisticated mathematician pseudo-scientists in the tradition of Galton and Quetelet may tell us, we cannot even model reality to the extent of being able to accurately foretell tomorrow’s weather.

But once again a heavily consumptive, indebted and overstretched imperial power (America) is coming to terms with the problem of decreasing power in the face of productive and expansionistic rivals (particularly China). That parallel tends to lead me to believe that imperialist warfare will be the greatest menace of the 21st Century, too. But that’s the problem with predicting the future: we simply don’t know what black swan events and non-events nature will deliver (although it would be wise not to place too much trust in politicians or the establishment media, who simply blow their own trumpet and hope for the best).

So what are we to do?

Well, I think it’s important that businesses, governments and individuals think about Malthusian concerns. Malthus’ incorrect theorising touched upon the most significant of human concerns. Quite simply, without food, water and energy we weak and fragile humans are imperilled. It’s important that governments (particularly of importer nations) devise strategies to cope with (for example) breakdowns in the international trade system. Individuals, families, businesses and communities should be aware of where their food, energy and water come from, and of alternatives in case the line of supply is cut. Keeping backups (e.g. solar panels, batteries, wind turbines, storable food and water) is a sensible precaution for all citizens. There will be shocks in the future, just as there have been in the past. We should be prepared for shocks, whatever they may be.

And we should learn to love such volatility. Nature will always deliver it. We evolved and developed with it. It is only in modernity that we have adopted systems procedures and methodologies to subdue volatility. And — as we are slowly learning via the disastrous consequences of every single failed experiment in central planning — volatility suppressed is like a coiled spring.

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32 thoughts on “Two Kinds of Black Swans

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  4. The Club of Rome have actually been quite accurate in their predictions so far. (Based on their standard scenario, not the other, more speculative ones.) But the real test of their predictions will come in a couple of years or so, when world industrial production is supposed to begin to deviate from “business as usual” and start decreasing rapidly.

    http://www.csiro.au/files/files/plje.pdf

    • Right, but the LTG standard run circa 2012 is not a Malthusian projection. It only takes on Malthusian characteristics circa 2015-20, as you note.

  5. The Fukishima thing is very scary indeed.
    They seem more interested in saving face rather than dealing with a problem that has the potential to rival the Black Death in swan terms. They’ve certainly done a good job in keeping it out of the news, but that’s about it.

    • Yeah. Japan’s honour-based culture. Big problem when it comes to being realistic about a meltdown that frankly is probably worse than or at least as bad as Chernobyl, if not as bad as that Japanese diplomat I linked to says it is.

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  7. Aziz, when considering “Malthusian” projections for population increases and the attendant crises associated with such increases, isn’t it important to consider that at the time Malthus was writing, many factors contributing to population death at that time aren’t as big of an issue today? Where I’m going with this is that wasn’t Malthus right to be wary of population growth rates?
    Sure he may have gotten some predictions wrong, but at the time of his work populations were much more affected by disease, germs, etc. Natural causes had a much more profound impact on population growth. Today that is less and less the case. Far fewer people are dying of disease, people are living longer, and even a bad genocide exceeding over 100,000 deaths doesn’t kill more people than are born everyday (which is something like 200,000 people).

    • Compare apples to apples, not apples to oranges. Birth control, and post-industrial population stabilisation did not exist in Malthus’ time either.

        • I don’t know for certain (and anyone who claims they know for certain, see Kari Norgaard, is a charlatan), but based on historical trends, I believe excessive population growth is of minimal concern. I tend to believe the evidence shows that so long as we allow every nation to industrialise, and allow every woman voluntary access to birth control that the “problem” will mostly take care of itself. Excessive population growth in the 20th century seems to be a quirk resulting from modern living standards (i.e. cleaner drinking water, and medicine, therefore much lower infant mortality) meeting ancient breeding practices (i.e. having as many children as possible so that at least one or two will survive to adulthood). Once nations fully modernised, these growth rates ended. Europe, etc, are now in slight decline.

          On the other hand, the threat to our civil liberties from politicians who believe population growth is running dangerously high is very real. The threat of other nations beyond China implementing one child policies, consumption controls, etc, is very real.

        • What people know for certain is that population growth is outstripping population decline, birth control is mostly a western phenomenon, and countries trying to “industrialize” (which means meet western standards of living) are growing very fast, creating lots of pollution and waste – see India and China. And who is to say these countries will fully “modernize,”
          whatever that means? That sounds like an assertion similar to the ones your criticize Kari Norgaard for.
          Economies could collapse before they fully “modernize”; people could still be having children at the same rate for a while after they do “modernize.” I think it’s foolish to assume that modernization in China or India etc. will look anything like the west – there are cultural considerations to think about.

          “On the other hand, the threat to our civil liberties from politicians who believe population growth is running dangerously high is very real. The threat of other nations beyond China implementing one child policies, consumption controls, etc, is very real.”

          Sheer nonsense! In my country you have got republicans who think the plan b pill is murder, and encourage people to have has many kids as they can: Rick santorum, Mitt Romney, Michelle Bachman, Octomom, the duggers. Need I say more? No one else is seriously considering, or even remotely considering a one child policy except for China and maybe India. This is more of a baseless assertion than what Norgaard or Malthus ever said.

        • I don’t deny there is a small possibility of a population-led crisis (although I always stipulate that this will probably result from political error rather than the actual scarcity of resources or food) but let’s just say that when scientists and commentators make such suggestions they should be aware that they are digging into a rich vein of incorrect predictions. India and China’s modernisation is creating much less polluting industries than Britain and America once did. I think the widespread awareness of the dangers of pollution is a good thing.

          As for birth control, it is widely adopted everywhere it is widely available. This seems to mostly be for economic reasons; raising two or three children is cheaper than raising ten or eleven children. I do think that certain countries (mostly for religious reasons: Nigeria, Pakistan, Saudi Arabia) are resisting birth control and of course birth rates there are still high, but I think that if they gave women the choice then birth rates would fall (for economic reasons) to European-ish levels. However, even if population keeps expanding (even at the U.N. upper projection level, i.e. 10 billion in 2050) I do not necessarily think that this will spell disaster.

          Ultimately, I don’t think that there is a specific upper-population-limit for Earth, and if there is it is far, far higher than any scientist has estimated. If there is a resource crisis, it will be for political reasons, like China in the 20th Century. I tend to believe in the power of human ingenuity to avert disaster, which is specifically what has been the case historically (i.e. the development of mechanised agriculture in the 20th century). If I have a choice between convincing the world’s population to freeze, or devising technologies to support a larger population (i.e. arcologies, vertical farming, nanoscale desalination, carbon scrubbing, etc etc) I will choose the latter every time.

          As for the One Child Policy, I don’t know how much time you spend reading bioscience/ecology/sustainability research papers, but I see such notions of limiting population growth discussed widely and openly in the literature, including in the work of Obama’s science tsar John Holdren who once openly floated drugging the water supply to reduce population growth (no, I am not suggesting that this has ever happened, but the fact that it has been floated as a semi-serious proposal means it warrants a semi-serious sceptical look).

          Here’s an article I wrote in February about such notions when I read the idea of a Western One Child Policy being openly floated by Roger Short and Malcolm Potts:

          http://azizonomics.com/2012/02/20/environmentalism-the-one-child-policy/

  8. Malthus also predicted that war would occur when population growth outstripped food production. So it could be argued that he was right. However Malthus did not criticise the social organization of society along Statist lines…he was blind to the practice of fractional reserve banking and money lending causing wars and giving profits to well placed elites.

    Worrying and preparing for potential catastrope in the future is not really rational is it? I mean any number of potentially disastorous events can occur to me before the big black swan, I could get crushed by furniture, I could get killed or injured in a road accident. I could get diagnosed with cancer despite being careful and health concious. Worrying about this can be paralysing, depressing and can make one ill. If we spend resources now on potential black swans in the future…by securing energy, water and food supplies, the opportunity cost is high and there are no gurantees that life would be worth living in a world after the black swan event. Urban areas would become hell holes with millions of people fighting for food…with no land to grow food on or means of cultivating it,…it would be a pretty fragile existence. It might be worth preparing if it was possible without destroying your current lifestyle and if the chances of surviving in the unseen event were great.

    Maybe we should stop worrying and just try to make the best of now or the present moment, our imaginations can conjure up all sorts of nasty future scenarios that will never occur…we should try to make the world a better place now, by re-assesing the way we are living right now…we obviously over consume and our economies are not designed to serve humanity they rather trap us and make us parasitical endless growth is not natural and credit based economies need endless growth.

    • Malthus also predicted that war would occur when population growth outstripped food production. So it could be argued that he was right.

      Completely wrong. Global population growth did not outstrip food production or food production growth in the 20th Century, other than in Africa and for brief periods in Asia (however these were man-made crises resulting from political stupidity, e.g. Mao). WWI and WWII were not Malthusian wars. They were imperial wars.

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  10. “Malthus also predicted that war would occur when population growth outstripped food production. So it could be argued that he was right. However Malthus did not criticise the social organization of society along Statist lines…he was blind to the practice of fractional reserve banking and money lending causing wars and giving profits to well placed elites.”

    I don’t understand the point you are trying to make. So is Population growth an issue or not? It sounds like it doesn’t matter to you.

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  12. Malthus’s reasoning was sound insofar as he realized that exponential growth in demand cannot coexist with linear growth in supply. Fortunately the price mechanism brings the two in line, so that we don’t experience ecological overshoot, i.e. snapping back to equilibrium, which we never departed from in the first place.

    Yet we ought to acknowledge at least a theoretical limit or carrying capacity given finite resources. This will vary not only according to available resources but also to the standard of living. As resources like oil deplete, we may not have a Malthusian die-off, but we may well see rapidly declining standards of living, which, from a policy maker’s perspective, could lead to dangerous outcomes. Hence their obsession with population issues.

    We should also distinguish between global and local outcomes. If the oil wells of, say, Saudi Arabia were destroyed by war or otherwise rendered inoperable, the worldwide ramifications, however severe, would be nothing compared to domestic chaos in the nation itself, since it is highly dependent on foreign trade to support a population and standard of living that far outstrips its desert environs. Therefore if Saudi rulers decided to take a keen interest in damping population pressures, I would not fault them by arguing along anti-Malthusian lines.

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