Black swans are a part of life. They are the term given by trader and author Nassim Nicholas Taleb to the unexpected, random, unpredictable events that disrupt models and forecasts, and make fools about economists and analysts. SARS was a black swan, and so was 9/11. So are SocGen’s troubles and Obama’s surge. Who could have predicted them? Who could have predicted the snow and traffic madness that hit China around the lunar new year?
Taleb’s book on the subject, Fooled by Randomness, is a must-read. He often gives the impression of being smug ands arrogant, but he’s right that a wise investment strategy has to take into account the unknowable – the random event that shifts a situation in a fundamental way, upsetting predictions happily or more usually tragically.
The government dodged a bullet for sure in the middle of the snow. It was the first serious black swan to hit China since SARS in 2003, and the fact that there was no disaster – no headlines reporting 50 dead in a stampede at Guangzhou railway station – was a pleasant relief and even a surprise.
It is worth remembering as the GDP train speeds towards another solid year of 10% growth that China is still susceptible to more black swans. Overall, it is probably true that the more mature, regulated and transparent a society, the less chance there is of seriously negative black swans. In those terms, China is in better shape today to ward off the birds than it has been for a long time.
But just as SARS got its start, it would seem, in a civet cat cage in a market in Guangzhou, what else is brewing out there? Who knows? Another religious cult? An environmental disaster somewhere no one thought of? A stand-off between the authorities and middle class property owners that turns nasty? A sudden stock market plunge? A couple of back-to-back airline crashes?
This is not a doomsday prediction, just a reminder that the unexpected is to be expected. China got over the snow pretty easily, but still has an endless capacity to surprise. It is worth keeping in mind.