The Black Swan
When “Because” Isn’t Enough
Gliding into Disorder
Big Dreams
Birthdays, Anniversaries and the 4th of July

“A similar effect is taking place in economic life. I spoke about globalization in Chapter 3; it is here, but it is not all for the good: it creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words, it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial institutions have been merging into a smaller number of very large banks. Almost all banks are now interrelated. So, the financial ecology is swelling into gigantic, incestuous, bureaucratic banks (often Gaussianized [bell curve] in their risk measurement)—when one falls, they all fall.

The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur... I shiver at the thought. I rephrase here: we will have fewer but more severe crises. The rarer the event, the less we know about its odds. It means that we know less and less about the possibility of a crisis.”

—Nicholas Nassim Taleb, The Black Swan, presciently written 2006ish

Happy Fourth of July, when we in the United States celebrate independence from England. This year ironically proves independence has limits. It didn’t protect us from a virus that originated elsewhere.

In a further irony, the same virus has compelled every government on the planet to, in various ways, declare independence from allies and trading partners. Similarly, consumers and businesses have also declared a kind of “independence” from each other because close contact is suddenly risky.

We knew pandemics happen and can have big consequences. No one knew in 2019 one was coming in 2020. It was what my friend Nassim Taleb called a “Black Swan” in his 2007 book with that title. (That book, along with Antifragile, are his two best. You only need to read the first half of Antifragile to get the point, making it a short but very important read.)

I read The Black Swan shortly after it came out. The financial crisis and Great Recession were brewing, and I was already beginning to predict a recession. We sensed something big was coming but didn’t know the details. Rereading my September 2007 review of Taleb’s book is an eerie glimpse into the past. It’s also a good reminder that more big events lie ahead.

This week I’m giving my staff (and myself) some much-needed time off. This letter will just be some excerpts from that 2007 Black Swan review. You can read the whole letter in our archives. It is excellent food for thought as we try to discern what lies ahead. Think of the future as The Blacker Swan.

I’ll be back at the end with some closing comments.