THERE were relatively few persuasive warnings during the 1920s that the Great Depression was on its way, and few argued convincingly during the last decade that the most recent economic crisis was near. So it’s easy to conclude that because we didn’t see these events coming, nothing could have been done to prevent them.
In fact, some people view the recent crisis as just another “black swan event,” one of those outliers, as popularized by Nassim Taleb, that come out of the blue. And it’s clear that a lot of smart people simply didn’t see the housing bubble, the instability of our financial sector or the shock that came in 2007 and 2008.
But the theory of outlier events doesn’t actually say that they cannot eventually be predicted. Many of them can be, if the right questions are asked and we use new and better data. Hurricanes, for example, were once black-swan events. Now we can forecast their likely formation and path pretty well, enough to significantly reduce the loss of life.
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Regarding this column's statement that "[t]oday, our prosperity depends on finance, and on its associated disciplines of accounting and macro-economics":
ReplyDeleteA different point of view: our prosperity depends on the 100+ million Americans who get out of bed each workday to go to work and on advances in science, engineering, and technology.