Mark Blyth (3): The Black Swan of Cairo

Mark Blyth, the know-it-all professor with the Sean Connery delivery, is back in the pub tonight, and not a moment to soon. When the political economy of energy is screaming red-alert, from Japan melting to Libya’s oilfield civil war, cheerful chatter from a certified political economist can sound like music. Let’s just forget that Mark Blyth, on our last round, told us that austerity would be our nightmare in 2011. And let’s remember it was Mark Blyth’s friend Nassim Nicholas Taleb who cautioned us almost a year ago that we seem to have entered the Age of the Black Swan — a black swan (think: BP oil blowout in the Gulf of Mexico) being an unimaginable event with big consequences and its own impervious mythology of cause and effect. The social service of black swans is to remind us that fragility is a main mark of global systems. In conversation at the Watson Institute, Mark Blyth is generously scooping himself from an article he and Mr. Taleb have co-authored for the magazine Foreign Affairs.

Let’s not get too bent out of shape about it, because complex systems, when they’re tightly coupled, are Black-Swan prone. And if all the volatility in the mix gets packed and shoved under the carpet, so to speak, then they become prone to these explosions. We also have a remarkable capacity to bounce back. Let’s think about what happened with Japan. You had the Trifecta from hell: first you have an earthquake at 9.0, so let’s follow up with a tsunami, and then a nuclear accident. What happens? Global stock markets fall off a cliff. A week later, they’re back. And the Japanese look like they might actually just pull this off. Why? Because they are a very technologically advanced society. Because they’ve got more experience with nuclear energy than anyone else. And because we got lucky. Let’s face facts, it could have been a lot worse. Now what is the lesson that we’re going to take from that? Being humans we’ll probably learn too much, which is to say, “Well, that shows that nuclear power is safe.” No it’s not. We got a sixty year track record. We’ve been lucky so far, but that doesn’t mean we’re not turkeys looking for Thanksgiving once again.

So we become more tightly coupled, there will be more Black Swan events, but our capacity to bounce back is always there… But you don’t want to get in a position whereby what you’re saying is don’t touch anything ever, don’t try anything ever, because it will end up creating some kind of downstream consequence you can’t calculate. Some of those consequences might be good.

Let me give you an example of this. A long time ago, back in the nineteenth century–before they had a fully formed notion of how diseases were transmitted through bacteria and viruses, etc.–there was a theory of disease that said it traveled on the wind, it was smell. And it was the stench that really made you sick. Hence why the Victorians were always running out to get “good air” and go out into the countryside and all that sort of stuff. Now, they were completely wrong. But one of the things that they did, because they were obsessed with smell, was to build sewers. Now that was exactly the right thing to do, had you had the proper theory of disease. So on the wrong theory, they got the smell and literally got the shit off the streets and put it all underground. And in doing so, they made the biggest advance in public health ever, for all the wrong reasons. Sometimes, nonlinearities work out in a really good way.

Mark Blyth in conversation with Chris Lydon at Brown University, March 22, 2011.

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  • orangescisor

    I think that people do see these things coming (minus being able to forecast disasters which no one can do) and not everyone is a monday morning quarterback. Just like Blyth saw that austerity politics would lead to the “unimaginable” labor unrest that we are seeing in Wisconsin and elsewhere…many people thought that there could be large scale protests against dictators in the middle east – al jazeera did a feature in the summer of 2010 that egypt’s political situation was very uncertain and may lead to large scale revolt, others said that the global economy pre-2008 didn’t make much sense, some said early on that obama would win the 2008 election, then many also said early on that obama might fall victim to the washington consensus, and others have been saying for years that U.S. foreign policy and liberal interventionism also doesn’t work as planned etc. – and a lot of people were hopelessly wrong about all these things.

    The question is why the experts couldn’t see these things coming but others could and why we generally don’t recognize more prescient voices until after the fact – when everything does look like monday morning quarterbacking. Everything is complex and always has been which is why in this age of huge amounts of fast information it’s important to show some historical depth to these events which seem hyper-complex, unforcastable etc. – so that we don’t get stuck in the endless cycles of not seeing things coming, momentary over-hyping, then repeating the same mistakes, and in the end being surprised that not everything was so well after all.

  • Some thoughts triggered by “Black Swan of Cairo” interview:
    1. Thorstein Veblen speaks of the “trained/educated incapacity” of professionals and academics who are blind to the limits of their fields. The strongest example in this is perhaps the current economics profession, with its endless Ptolemaic circles and no Copernicus. The Germans call this “Fachidiotie” i.e. “specialist idiocy”. Bernanke, say, went on and on about “The Great Moderation” and the “savings glut” both of which were economistic-parochial bum steers.

    2. While it is true that using concepts and parables and puzzles from areas such as CAS (complex adaptive systems) and metastability theory and nonlinear dynamics greatly enriches the discussions of political economy by beginning to explain the “hellzapoppin” interactions between processes, events, levels, etc., Blyth and Taleb, omit the historical bedrock that underlies the CAS, metastability and nonlinearities (see next point).

    3. This vertiginous world-system of instability derives ultimately from a leadership crisis since “where there is no vision the people perish”, as FDR (and JFK) say in ther speeches, borrowing from the Bible.

    The world is transitioning from a world-economy to an economy-world where intense Western/OPEC/Muslim/Third World negotiations and coordination will be needed to change the architecture of the world political economy from a clash of civilizations “ecosystem” to a rendezvous of civilizations one.

    One cannot do this as long as the American-led West is blocked by Israel and Israel-centrism. The institutional arrangements needed to get beyond the “Black Swan of Cairo” syndrome presuppose a post-Zionist epoch. (This would also expedite the creation of a Climate Bank to address the global climate threat.)

    As long as the world as a system fails to begin the move from civilizational clash to civilizational rendezvous, the counterintuitive “hellzapoppin’” Blyth-Talib “crazy dynamics” and fragility-nomics will continue.

  • Sean McElroy

    Regarding the Black Swans of Tunisia, Egypt, Libya, et al. Leon Neyfakh’s article in The Boston Globe 3/27/11 “Is this 1848?” raises the possibility that what we’re seeing in the Middle East has a historical antecedent: Europe 1848, that those rebellions were the result of crop failures and a subsequent increase in food costs. It doesn’t strike me as a particularly complex notion that hunger and other repressions can foster chaotic revolt – we’ve seen it all before none too many times. Could it be that we’re projecting our own democratic wish fulfillment onto an event that is nothing more than a run-of-the-mill attempt to get out from under the despotic boot and is otherwise aimless?

    It should surprise no one that US foreign policy operates with blinders fully in place and rears up only when it hears the crack of the whip – prescience with all the intellectual fervor of hindsight. If you doubt this, consider what concrete actions the US or its allies may have taken if in 2010 it/they had come into contact with irrefutable evidence, such as some economic model spitting out a prediction, of impending revolution in Benghazi. The word nothing comes to this writer’s mind.

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  • Potter

    I would say they pushed the shit off the streets for the right reasons: it smelled bad, they did not like stepping in it, being hit with it etc. The added benefit, was greater though: the improvement in everyone’s health. This led me to look up sanitation in ancient Rome. They did have sewers. So I wonder how or why this knowledge was lost.

    What is amazing is that we ( some of us) are still fighting voodoo economics and those attacking funding for planned parenthood and NPR.

    Japan will eventually sort of bounce back but right now they are really suffering. I think we are all in trouble actually. We need energy and there are serious problems with the sources: coal, nuclear and oil.

    Regarding Obama and what this guy really stands for- we are asking that after every great speech and disappointing follow through.

    To go on– we need the humor more than ever, perplexed as we are now, albeit on a higher level.

  • Marc McElroy

    This show was great, I have been drawn back to it to listen again, thanks again, (as always) Chris for bringing interesting people to the fore.

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  • Just listened to this again. Blyth’s casual acceptance of government assertions that the damage from the Japanese nuclear disaster was minimal, which are now being unmasked as intentionally false and misleading, adds another layer to the problem of constructing a narrative after the “facts” are known. Hindsight isn’t 20/20 if the sources are lying, and in this complex world there’s no way for any of us, even the most intelligent and talented, to verify a set of facts to begin with. Trust is all that’s left — or faith — trust in someone/somewhere to set the seed upon which the rest is built. Not a promising place to start.

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  • Keith Brodie

    The levered 1-to-1 argument for the USA is simply wrong. There is 15 trillion of on balance sheet government debt. The denominator for that debt, to determine leverage, is government tax receipts, not GDP. To determine leverage overall, total public sector and private debt is divided by GDP. Conservatively, total public and private debt is, conservatively, 60-70 trillion. Leverage is 4x, conservatively – and the rate of growth is accelerating. If we actually marked assets to market, the unfunded liabilities would grow to at least that amount again. The idea that the debt crisis is an economically unnecessary morality play is – well – dumb. Bernholtz’s book Monetary Regimes and Inflation makes clear that the historical endpoint for 22 prior fiat currencies hinges on the percentage of government expenditures made with new debt. When that number reaches 50%, and we have, trouble follows. And it’s not because of Republicans – it’s because we cannot sustain our spending level, and we lack the political will to fix it.

    The idea that meeting Euro membership criteria is some kind of mark of economic credibility – is that parody? Was it repeated to make sure we get the joke? What does Euro membership have to do with solvency?