Bestselling author Nassim Nicholas Taleb is irritated when he hears the coronavirus pandemic being referred to as a “black swan” event.
Taleb, a Lebanese-American essayist, scholar, and statistician, coined the phrase to mean an unpredictable, rare, and catastrophic event. COVID-19 is not a black swan event; the U.S. was forewarned about, he said.
He should know. He wrote the best-selling book, “The Black Swan” in 2007. “We issued our warning that, effectively, you should kill (COVID-19) in the egg,” Taleb said during a Bloomberg TV interview on March 31. However, he said, governments “did not want to spend pennies in January. Now they are going to spend trillions.”
Taleb was referring to a Jan. 26 paper he co-authored with Joseph Norman and Yaneer Bar-Yam, when the coronavirus was still mainly confined to China. In the paper, Taleb cautioned that owing to “increased connectivity,” the spread will be “nonlinear.” The paper was published on Academia.edu, a platform for academics to share research papers.
Here are five takeaways from “The Black Swan” author Taleb.
Taleb and his co-authors called for “drastically pruning contact networks,” or in other words, social distancing, as the U.S. is now practicing. “Decision-makers must act swiftly,” the authors concluded, “and avoid the fallacy that to have an appropriate respect for uncertainty in the face of possible irreversible catastrophe amounts to ‘paranoia.’”
Taleb said he keeps being asked to predict the next “black swan,” a question that frustrates him. “If (Taleb) was right about the spread of this pandemic, it’s because he has been so alert to the dangers of connectivity and nonlinearity more generally, to pandemics and other chance calamities for which COVID-19 is a storm signal,” The New York reported.
Taleb told the Times he keeps getting asked “for a list of the next four black swans,” and that misses his point entirely. His main aim is building political structures so that societies will be better able to cope with mounting, random events. His focus is not in predicting the events.
According to Taleb, economists, officials, journalists, and executives are the “naïve empiricists who treat tomorrow as if it was yesterday.” They are doing a disservice to everyone, he said. They consult bell curves, focus on their bulging centers, and disregard potentially fatal “fat tails” — events that seem statistically remote but contribute most to outcomes by precipitating chain reactions, say, he told the New Yorker. Naïve empiricists plant us, Taleb argued in “The Black Swan,” in “Mediocristan.” We actually live in “Extremistan.”
For Taleb, Lebanon’s civil war was perhaps his first black swan. He lived through the war as a young man. The was “was precipitated by Palestinian militias escaping a Jordanian crackdown in 1971 and led to bloody clashes between Maronite Christians and Sunni Muslims, drawing in Shiites, Druze, and the Syrians as well. The conflict lasted 15 years and left some 90,000 people dead,” The New York reported.
“These events were unexplainable, but intelligent people thought they were capable of providing convincing explanations for them — after the fact,” Taleb wrote in “The Black Swan.” “The more intelligent the person, the better sounding the explanation.”
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When looking back on Lebanon’s civil war, Taleb wondered how anyone could have anticipated “that people who seemed a model of tolerance could become the purest of barbarians overnight?” But moving ahead he related his expenses with the violence and illusion of war to the world of business. “I later saw the exact same illusion of understanding in business success and the financial markets,” he wrote.
This was in 1983. After studying at university in Paris, and earning a Wharton M.B.A., Taleb became an options trader — “my core identity,” he said. For the next 12 years, he conducted 200,000 trades and examined 70,000 risk-management reports. He said he developed an investment strategy that entailed “exposure to regular, small losses, while positioning him to benefit from irregular, massive gains — something like a venture capitalist,” The New York reported.
During this period, large U.S. manufacturing companies were moving towards just-in-time production. The concept was that lowering inventory would equal fewer costs. But Taleb believed that “managing without buffers was irresponsible,” because the unexpected can never fully be avoided.
It seems he predicted correctly. Chinese suppliers paralyzed by the pandemic have stymied the production capabilities of a majority of the companies that depend on them, the Harvard Business Review reported.
