PERFORMANCE ANNOUNCEMENT
As Of: March 12, 2008
I Didn’t See That Coming!”
Preparing For The Unexpected
Complex systems tend to seek a level of stability. Depending on the system in question, stability may be transient or last for millions of years, such as with a star. Stability never lasts forever. Although typically unpredictable along the line of time, there will inevitably occur an event that will disrupt the stability of any system. A supernova is just such a cataclysmic event that has a “low probability, but a high impact”. When a star suddenly explodes into a supernova, it releases as much energy as our sun would release over billions of years. Such an event is largely unpredictable, but entirely normal.
Reliance on interdependent systems increases the likelihood of experiencing a “low probability, but high impact” event. As an example, South Africa is a country with a history of many worrisome problems ranging from racial, political, social, economic, disease, and currency exchange; but who would have expected that the country would be brought to its knees by an electric shortage? Eskom supplies about 95% of the electric power to South Africa, and a decade of poor planning and political wrangling has left South Africa with power shortages that will severely impact economic growth. Fault will be placed on poor planning and bad decisions, but the true risk lies with dependence on one large electric supplier.
People fail to understand that it is very normal for things to happen that have never happened before. Most of these unpredictable “low probability” events are of little consequence. However, every once in a while one of these low probability events becomes a “high impact” event, and may even be catastrophic. The increasing interdependence of complex systems that support technologically advanced economies virtually guarantees the likelihood of “low probability, but high impact events”. For example, computers are complex machines and are prone to both hardware and software failures. This is a familiar risk, but now computers are increasingly dependent on access to the internet in order to retrieve data from distant servers. The internet itself is a complex system and introduces additional risks (such as viruses). But the interdependence continues. The running of computers, and access to the internet depends on electricity. The generation of electricity depends on access to fossil fuels. Access to coal, oil, and natural gas depends not only on economic and political considerations, but also on an elaborate transport system of ships, railroads, and pipelines. It would be nice if all systems were secure, hardened against shock, redundant, and backed up with excess capacity; but it doesn’t happen in the real world. All systems have critical nodes and choke points. As one traces through the interlocking web of interdependence, it becomes clear that a failure at any point has the potential of a domino effect that can spread like a pandemic.
Mountain climbers rope themselves together for protection on steep faces, but this can be delusional. Without a fixed anchor point, climbers that rope themselves together are doing little more than entering into a suicide pact. If one person makes a mistake, the whole group may be wiped out. And the more people that are roped together, the greater the probability that someone will make a mistake. So the question for the individual is: “Do I have to become a victim of the low probability, but high impact event?”
We are all roped together through a complex food chain, communication systems, energy systems, water and sewer systems, transportation systems, and at the heart of it all, an economic and financial system. It is entirely normal, indeed probable, that an event that has never happened before (an event that you have never even imagined), will have a direct impact on your life. Like the mountain climbers that are roped together, you have to ask yourself: “Is there a fixed anchor point that will hold? If not, am I prepared to cut myself loose so I won’t be pulled down with everyone else?”
The bad news is that you cannot stop the inevitable and unpredictable. The good news is that you do not have to be a victim. Preparation is part of the solution. Look at your life and analyze your dependencies. Are you totally dependent on one income stream or the value of one asset? What will you do if you lose electricity for a week or longer? Imagine a trucker’s strike and empty grocery store shelves. How will you eat? Do you have a family plan if all phone systems go down, or if there is a terrorist event? You cannot anticipate and plan for everything; but a failure to secure a few strong anchor points, and develop some alternatives to your dependencies, is like a climber roping himself together in a suicide pact.
Information and education should be another part of your defense. We have truly entered into an era of global interdependence, yet Americans are amazingly naive about the global economy. We have been uniquely protected and spoiled by an ocean on each coast, abundant resources, a strong military, a strong economy, and a strong currency that has been the international standard. All that is changing. Americans need to understand the new paradigm as it evolves. A huge transfer of economic wealth and power has been taking place, and our role in the world is going to inevitably change. The individual should be less concerned about making a value judgement about whether the changes are good or bad, and more focused on how, as an individual, one can anticipate and profit from the change. Monitoring the big picture and understanding change gives you a fighting chance of anticipating and preparing for problems. This is no different than a sailor knowing how to read the weather.
And finally, being a survivor is a matter of attitude. Cutting the ropes that bind you to your fellow man may seem like a harsh decision. If you have a secure anchor point, you may be able to hold on and help others. If you don’t, you need to have the determination to cut your losses and survive to rebuild in the future. Too many Americans have a welfare mentality. If they are lost in the wilderness, they figure they can just dial 911 and the government will come rescue them. This is faulty thinking. If there is one complex system that I do not want to stake my life on, it is the government.
In conclusion, the good news is that high impact events have a low probability. Although they are inevitable, they may not happen for a long time. They may not even happen within your lifetime. And they may simply happen on the other side of the world. The second piece of good news is that even though “low probability, but high impact” events are inevitable, you do not have to be a victim. It is even possible that you can benefit if you can position yourself properly in advance.