The Long Crisis

Posts Tagged ‘black swan’

Over the past few weeks we have been given a glimpse of how the failure of complex technological systems can, when they fail, cause havoc and destruction. In much of the world of today humans rely so heavily on technology that the failure of critical technological systems could even lead to the failure of civilizations.

One scary example of a complex system that temporarily failed is the insane drop of 1000 points in the Dow Jones industrial averages that occurred on Thursday, May 6, 2010. In recent years trading activity has heavily shifted from human traders and market makers to complex high-speed computers program with exceedingly complex computer trading programs and algorithms. No one seems to be sure as to what caused the terrifying plunge in the Dow and the equally swift 650 point recovery but logic dictates that there was a failure of some sort within the complex high-speed trading system.

The really scary aspect of the bizarre stock market price action is that since no one really knows the cause so far nothing within the system has been fixed. This causes great uncertainty among traders as there is the possibility that such an occurrence could happen once again. The loss of $1 trillion in market value within just a few minutes is obviously a serious matter. It appears that an over reliance upon complex technological trading systems may frighten retail traders away from the stock market. It is frightening to think that the very health of the world economy depends upon over confident computer geeks and programmers who perhaps have overestimated their ability to eliminate potentially fatal errors and perhaps even cyber attacks from the trading system.

Another Black Swan technological based incident is the recent oil spill in the Gulf of Mexico. Drilling oil producing wells in deep water requires for there to be a great reliance upon cutting edge drilling technology. The oil well being drilled by the DeepWater Horizon drilling rig was being drilled in 5000 feet of water. The owner of the oil well, British Petroleum, was confident that the latest in high-tech fail safe devices were in place and that the disaster of an oil rig blowing up and then sinking was an impossibility. Once again, an over reliance on complex technology set the stage for an environmental disaster that will impact the states of Louisiana, Mississippi, Alabama, and Florida, and perhaps in time, should the oil spill find its way into the Gulf Stream, the entire United States Eastern Seaboard.

In general, our extreme reliance upon the use of fossil fuels to power our energy requirements in the modern world through complex technological systems, such as automobiles, aircraft, electric power generation stations, and ocean liners, set up a chain of dependence upon the sustained operation of our technological systems that leave us vulnerable to the break down of any one of perhaps thousands of parts.

Natural occurrences can also have a severe impact upon our complex technological systems. The recent eruption of the volcano in Iceland was a natural disaster that had a severe impact on one of our complex technological systems. For several days, due to a high level of volcanic ash in the atmosphere airspace was closed over much of Europe. This caused a severe disruption in the operation of airlines. This disruption not only inconvenienced travelers but caused breaks in the supply chain of high value supplies that are normally shipped by air freight.

While the overall consequences were fairly minor and not catastrophic it was only because the disruption lasted for just a few days. A volcanic eruption that spewed great quantities of ash into the atmosphere for several months would have tremendous disruptive, perhaps even fatal for some, consequences for the airline industry and for the industries that air travel serves. So while there was not a technological failure of the systems used by the aircraft travel and shipping industry a natural disaster led to a situation whereby vital technology, such as jet engines, could not be safety utilized.

There is a danger that the consequences of our reliance on complex technological systems could lead to the failure of our civilization as we know it. There are several examples in history of how once thriving civilizations suddenly failed. One worth noting is the Maya civilization. The Maya lived in the eastern one third of Mesoamerica, mainly on the Yucatan Peninsula, which is located in what is now Mexico. The Maya enjoyed a thriving civilization for 3000 years and yet that civilization suddenly failed.

While the collapse of the Maya remains one of the most intriguing events in human history many anthropologists believe that the Maya were dependent upon highly developed water systems that used sophisticated technology of their day to support the growth and development of their civilization. Their dependence upon technology to deliver and distribute water to their population perhaps failed to a long-term drought. Without fresh water as an input into their system their technology became useless.

There are many who believe that the further development of technology will save the human race. No doubt, in recent years we humans have made great advances in the development and use of technology in our daily lives. Consider how the use of computers, cell phones, wireless devices, and satellites have transformed the way we live and communicate. Yet it is only prudent that we keep in mind that technology is not yet fail safe and that failures can, and do, occur.

It is dangerous to the human race to rely so heavily on complex technological systems to such a degree that their failure could also lead to the destruction of our civilization.

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A Black Swan event is defined as an event that has a very low probability of occurring but should it occur the consequences are catastrophic. The oil drilling industry has a good track record in preventing oil spills but unfortunately the explosion and subsequent sinking of the Deepwater Horizon oil rig in the Gulf of Mexico on April 20, 2010 highlights the fact that in deep water oil drilling when something goes wrong the results are likely to be catastrophic.

The gulf oil spill that is now threatening the marshlands, estuaries, beaches, the commercial and sport fishing industries, tourism, and hundreds of thousands of related jobs does fit the definition of a catastrophic black Swan event. As an estimated 5000 barrels of crude oil are still spewing into the gulf from the uncapped wellhead the oil spill is still spreading and is now threatening the coastlines of Louisiana, Mississippi, Alabama, and Florida. Unless the wellhead can soon be capped and the flow of oil stopped the spill may also extend to the Texas beaches.

The oil spill disaster is threatening many of the same areas that were so drastically battered by Hurricane Katrina. The long term affects of the oil spill will likely be even worse than those caused by Hurricane Katrina as with the beaches ruined and fish, shellfish, shrimp, birds, and other wildlife largely destroyed, it will take many years for the affected areas to recover. The probability is high that the oil spill disaster will cost hundreds of thousands of jobs as families who depend upon the fishing and tourism industries for their livelihood lose the very foundation of their businesses and places of employment.

The extent of the Deepwater Horizon explosion, sinking, and oil spill catastrophe continues to grow day by day. Thus far BP, the oil company that owns the blown out oil well, has been unable to cap the well and stop the flow of oil into the Gulf. The difficulty of that task is vastly compounded by the fact that the wellhead is over 5000 feet deep. BP has been unable to successfully deploy the underwater robots designed to handle such tasks. Until the well is capped no one knows just how catastrophic the event may prove to be. While the loss of eleven oil workers on the rig was tragic enough additional tragic events will follow. There is no doubt that the cost of the damage to wildlife, property, and employment is already into the many billions of dollars and that more human grief and suffering will occur with no end in sight.

At a time when the American economy is still struggling to recover from recession the Deepwater Horizon oil spill event has occurred at a most unfortunate time. However, that seems to be the nature of Black Swan event’s, their probability of occurring at all is considered to be so low that no one is prepared for the catastrophe that unfolds when the events do occur and they tend to occur when we are least prepared to deal with them.

Hurricane season in the Gulf of Mexico begins in about 30 days. Should oil still be flowing into the Gulf as a hurricane passes close by the Gulf oil spill catastrophe may mushroom into the greatest Black Swan event ever to affect the United States.

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The eruption of the Eyjafjallajokull volcano in Iceland is the type of disaster that is a true black swan event. Black Swan events as described by Nassim Nicholas Taleb are the existence and occurrence of high-impact, hard-to-predict, and rare events that are beyond the realm of normal expectations. Black Swan Events were described by Nassim Nicholas Taleb in his 2007 book, The Black Swan.

The Eyjafjallajokul volcano eruption is now causing havoc on the island nation of Iceland as well as worldwide chaos with air travel. The volcanic ash emitted from the volcano is made more dangerous to aircraft by being mixed with water from a melting glacier as it is violently ejected into the atmosphere. The resulting fine ash contains glass like particles that can shut down aircraft engines when sucked into aircraft jet engine compressors. Aviation experts say the volcanic plume has caused the worst travel disruption Europe — and the world — has ever seen.

As of late Friday and Saturday morning there was no end in sight to the disruption. The ash plume from the volcano, which is under a glacier known as Eyjafjallajökull, drifted south and east across Europe causing airspace closures and the cancellation of an estimated 16,000 of Europe’s 28,000 flights Friday, officials said. The situation is even worse today. The airlines are already losing an estimated $200 million per day in lost revenues and expenses with no end in sight.

The ash cloud from the volcano is not only causing havoc for European airports and airlines. For example, in today’s connected world travelers are being stranded in far away Australia as flights to Europe are canceled. Flights from the United States to Europe have been sharply curtailed with tourists being forced to cancel vacations and business travelers missing meetings. Even heads of state who had planned to travel to Poland to attend the funeral of the Polish president killed in a recent air accident are being force to cancel their trips. Even if the volcano stopped spewing ash today, which is highly unlikely, it would take at least a week for air travel to resume at normal levels as aircraft and crews are out of place all over the globe and it will take a huge expensive effort on the part of the airlines to regroup and to reestablish normal schedules.

According to an Asia-based aviation analyst the level of flight disruptions grounded about half of the daily cargo volume between Asia and Europe. About 7,000 tons of goods are flown daily on average from Asia to Europe and an additional 4,000 tons from Europe to Asia, the analyst estimated, involving mostly electronics, luxury items and perishable goods such as fruits, vegetables and meat. Should disruptions continue there are concerns about possible shortages of some products.

Volcano experts seem to have no real idea as to how long the eruption can continue. The last time that the Eyjafjallajokull volcano erupted was in 1821, almost 200 years ago. It is not reassuring that the 1821 eruption continued for well over one year. Hrafn Gudmundsson, a forecaster at the Iceland Meteorological Office, said high-level winds would be constant through Saturday afternoon, carrying ash to the east and southeast. “No one knows, of course, how the volcano will develop, so that’s the big question.”

“The activity has been quite vigorous overnight, causing the eruption column to grow,” Icelandic geologist Magnus Tumi Gudmundsson told The Associated Press on Saturday. “It’s the magma mixing with the water that creates the explosivity. Unfortunately, there doesn’t seem to be an end in sight.”

Unfortunately, Iceland seems to be a small nation that attracts catastrophic black swan events. Iceland was the first nation to meltdown during the worldwide financial chaos of 2008. The nation is still struggling under a debt load that is completely unmanageable. Iceland seems primed for further disaster. Iceland is a nation of only 320,000 people that sits on a large volcanic hot spot in the Atlantic’s mid-oceanic ridge and has a history of devastating eruptions. One of the worst was the 1783 eruption of the Laki volcano, which spewed a toxic cloud over Europe, killing tens of thousands.

As the Laki volcano is only some 16 miles from the Eyjafjallajokull volcano some experts fear that the present eruption could spread to include the Laki volcano. Should that event occur a flock of black swans would be unleashed upon Europe and the world. Should the volcanos erupt simultaneously and the eruptions continue for a year or more not only would the major airlines of the world spiral into bankruptcy but the disruption to world travel, world trade, and in weather patterns would be catastrophic.

In the highly connected modern world black swan events, such as volcanic eruptions occurring within the boundaries of a tiny island nation, could have disastrous consequences for us all.

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