“Is it just me or is it getting crazier out there?”
-Joaquin Phoenix, Joker
In the late 16th century, French philosopher Michel de Montaigne wrote the Essays or Essais (in French). It was, as the name suggested, a series (107 to be exact) of essays on the essence of human nature and other philosophical-sounding issues. What is relevant about Montaigne’s work is that it was incredibly introspective; he was tortured by the awareness of his own ignorance. His Essais reflected a tentative humility and it’s a large part of why we get the word “essay” today. The word “essay” means a speculative, modest, non-arrogant, attempt. It means taking a stab at figuring things out while simultaneously keeping a steady level of humility. It doesn’t mean writing with a lack of self-confidence, but writing with a healthy amount of self-awareness about how little we truly know about the world. In short, I know nothing, but let me try anyway: an Essais on Black Swan by Nassim Nicholas Taleb.
I would be lying if I said I understood half of what was going on in Black Swan, but the half I did understand was truly mind-blowing. To summarize, a Black Swan event is an event that’s highly unexpected but has severe consequences. It’s referred to as a Black Swan because it used to be a (Western) belief that all swans were white until a dutch settler went to Australia and discovered the existence of a black swan. This was a completely unexpected (deemed impossible) event that profoundly changed Zoology.
I picked up this book precisely because we are going through, what many would call, a Black Swan event: COVID-19. Corona is a Black Swan event because it’s extremely unexpected (a few people predicted it, but if we genuinely had expected it, we would have been more prepared) and it will completely and severely change our lives forever. The future of working from home, online degrees, financial markets, public health, and speculative investing will never be the same. This is an event that has toppled business, causing entire countries to put a “pause” on ordinary life, and wiping out trillions of dollars in the global economy. Yet, only five months ago, not a single relevant government official saw it coming. There was no model or forecast that predicted it. How did this happen? How could we have been so blind?
That’s the central question that Black Swan is trying to answer. It’s a book that covers a variety of topics from philosophy, to economics, to statistics. It deals with epistemology of humanity, Gaussian bell curves, fractal geometry, and other -ities. It’s so broad in its scope that it would take a Montaigne level of essays to make sense of it all. Yet the central claim that I took away is the irony of Black Swans. The irony is that we are so blind to Black Swans, yet our lives are controlled by them. The history of humanity has been propelled forward by Black Swans: World War 2, 9/11, Financial Crash of 2008, the Internet, and the Atom Bomb. The development of history is far from a gradual crawl, but a powerful leap from one war, invention, and development to the next. He makes the claim that our lives are controlled by the extreme, yet in our financial and statistical models for measuring risk, we ignore the extremes and treat them as exceptions.
Unfortunately, the extremes are only going to get worse. As things become more concentrated and connected through globalization, as wealth becomes more concentrated, and as weapons get stronger, the system becomes paradoxically both safer and riskier. It’s safer in that we can distribute risk evenly, yet riskier because it becomes even more vulnerable to Black Swans. Although having our supply chains so interconnected that we have one global economy creates a stronger, more stable economy, it only takes one hurricane, one disease, one atom bomb, one bubble, one housing crisis, or one crazy dictator to bring the entire system crashing down. That sounds impossible, but in the past few months we’ve seen a disease halfway across the world cause unemployment to rise to the highest level since the Great Depression. What is deemed “impossible” may not be so impossible anymore. Everything’s on the table. That is why I wrote this from the perspective of the “essay”. I often write and talk with a sense of unwarranted confidence; a small dash of humility and self-realization of my ignorance is vital, especially since the world’s growing more unexpected.
Like I said at the start, I know nothing, but let my try anyway.