Today’s economic news is a mixed bag, so is an economic Black Swan about to land that will cause more uncertainty and instability?
To non-economic readers, a “Black Swan” event is a large, unfortunate event that is completely unanticipated, unusual and rare. Though it may have nothing to do with economics directly, it usually has an immediate and lasting effect on a regional or global scale. Examples of past black swan events are; the American stock market flash crash in 2010, the terrorist attacks of 9/11 and the 2011 Japanese earthquake and tsunami.
The theory or metaphor of a Black Swan event was developed by Nassim Nicholas Taleb. The historical examples he points to are larger and are more global in scale; WWI, the fall of the Soviet Union and the events of 9/11.
Black swan events often occur at the worst of times when governments or their citizens become complacent and live under the delusion that things are always going to stay the same (they don’t). Though unexpected by definition, Black Swan events can and do often become catalysts for change – both good and bad.
Theorizing what the next Black Swan event will be can be divided into three distinct categories; human caused, nature caused, or a combination of both. A large earthquake on the west coast of the U.S. (nature caused) will be catastrophic not because it occurred as earthquakes in this location have occurred for thousands of years. Damage however, will be much worse due to human development on earthquake-prone ground (a combination of both).
Possible nature-created Black Swan event(s) are:
- A large earthquake and subsequent destruction in a highly populated area.
- Unanticipated space weather, such as sunspot activity that will affect large parts of the electrical grid.
- An unexpected and untreatable human virus or bacteria.
- Due to the homogeneous nature of the world’s food crops, a famine brought on by an unexpected virus or bacteria of a major food crop.
Human-created Black Swan event(s) include:
- Large-scale terrorist activity, which could include nuclear material.
- Large-scale governmental actions such as martial law (China 1989), assassinations, or political challenges of existing national boundaries.
- Technological glitches or collapse, perhaps with the assistance of a computer virus or unknown complexity collapse.
- An unexpected change in the world’s economic system, either monetary, fiscal or method(s) of transacting business.
When contemplating Black Swan events, it’s important to note that, “things happen” – with some events having a greater impact than others. A Black Swan event will happen, and sooner than later. Be prepared and stay calm, for nothing stays the same for very long.