Jewish World Review August 26, 2011 / 26 Menachem-Av, 5771
What an earthquake tells us about debt
By Jay Ambrose
http://www.JewishWorldReview.com | You are carefully looking both ways as you cross a street, think you are safe, but step in a manhole previously covered, breaking a leg. It's a mini-example of the Black Swan Theory at work – you think you've got the world figured out and something unexpected comes your way – and that's how I'd sum up Tuesday's eastern earthquake.
Though injuries and damage were minimal, it was a scary thing and what made it worse is that no one was betting on something like this. Doesn't Mother Nature know the West Coast is her usual seismic target?
Everyone else does. In San Francisco, where building codes keep two tectonic plates in mind, people don't get what the fuss is about. They're used to a whole lot of shaking going on.
In the East, the expectations are of a terra firma kind, and building codes are wimpier. There have been other issues to worry about – political rumblings from an epicenter called the Capitol, certainly – but not a 5.8-magnitude quake that made the Earth move from South Carolina to New England, causing mad moments in Manhattan, cracks in the 1884 Washington Monument and a White House evacuation.
Now we get back to the aforementioned theory, one that doesn't itself have much use for most other theories as it reminds us that it was a final truth for centuries in Europe that all swans were white. Then came the 1697 discovery in Australia of black swans, an example, says Nassim Nicholas Taleb, of how our presumed knowledge seldom reaches the top floor. There is always something out there we don't know about or much consider, meaning our best-laid plans repeatedly misstate reality.
Taleb, master of financial math, professor of risk engineering and author of "The Black Swan – The Impact of the Highly Improbable," explains that a Black Swan event is, first off, one you would not normally anticipate "because nothing in the past can convincingly point to its possibility." Second – and this is how these events differ from above illustrations – "it carries an extreme impact." Last of all, we can't help devising after-the-fact explanations making the events sound predictable.
According to Taleb, most major events of history were of this kind, including the fall of the Soviet Union (a positive Black Swan) and 9/11 jihadists toppling the World Trade Center among their evil deeds (obviously a negative). He says the world is shaped by the extreme, unknown and improbable and that "we spend our time engaged in small talk, focusing on the known ..."
Given all of this, you might assume Taleb would never make a forecast, but he has an interesting truth technique – skepticism of "the infallibility of the Nobel" and what's said by many economists, social scientists, statisticians and "phony experts" generally. Stay away from their stuff, do some serious thinking without thinking you know it all, and maybe you'll be one of the few foreseeing the 2008 financial crisis. Mr. Taleb, take a bow, and then tell us your biggest worry today.
It's the deficits and debt. Black Swans lurk there, all of them powerfully negative as we walk close enough to pat one, he warns. The bailouts? They were a message to financial institutions that recklessness has its rewards. The trillion-dollar stimulus, which Nobel Prize-winning economist and New York Times columnist Paul Krugman desperately wants to replenish, did nothing but worsen the economy, says Taleb. And that brings us back to the earthquake.
One of the features that fascinates me about this America of ours is that no big-deal incident gets past us without humor – sometimes black humor – circulating the continent. It used to be by mouth and would take a few days to reach you, maybe. With the Internet, it takes a matter of minutes. A friend sent earthquake jokes, and I quickly found my favorite.
"Krugman says it wasn't big enough."
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Jay Ambrose, formerly Washington director of editorial policy for Scripps Howard newspapers and the editor of dailies in El Paso, Texas, and Denver, is a columnist living in Colorado.
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