Showing posts with label buffett. Show all posts
Showing posts with label buffett. Show all posts

Wednesday, August 25, 2010

Black Swan Events: Nuclear War and Nuclear Terrorism

In my new Black Swan series of blog posts, I will be looking at a few of the potential surprises that history could have in store for us. Nassim Nicholas Taleb defines a Black Swan as an event that is very difficult to predict in advance, but radically changes the course of history. Some examples in the last 50 years include 9/11, the sudden collapse of communism and the end of the Cold War, the AIDS pandemic, and the invention of the birth control pill. It would have been very difficult for a futurist to predict any of those events in advance based on trends, and yet they have had a very large impact on the world. A Black Swan Event could throw a wrench into predictions for the future, which tend to be based on analyzing trends rather than anticipating surprises.

All of the predictions I have made about the future of technology, especially those in the more distant future, should have the following disclaimer: “Provided that we do not destroy ourselves.” Today I’ll be examining a Black Swan event that has been hanging over humanity like a Sword of Damocles for 65 years. A nuclear war has been widely viewed as the ultimate catastrophe. Very few things could set back the progress we have made in improving the quality of life in the past two centuries more than a nuclear war could. Where is the greatest threat of a nuclear war, and where is the greatest potential for destruction? Could a sovereign nation launch a nuclear first-strike against its foes, or are nuclear-armed terrorists the greater threat?

Let’s first examine the potential sources of an international nuclear war. While less likely than a nuclear terrorist attack, it has far more destructive capability. I think there are three main global flash points to consider: India-Pakistan, North Korea-United States, and Israel-Iran.

As with any Black Swan Events, we need to evaluate scenarios based upon both their likelihood and their destructive potential. The India-Pakistan flash point is very high on both measures, making it of supreme importance. This region has the greatest potential for an international nuclear war in my opinion. The two foes have 60-80 nuclear weapons each, and neither seems to have many qualms about nuclear brinkmanship. The extreme population density in this part of the world means that even a single nuclear volley could have enormous destructive potential. Despite (or perhaps because of) the instability of the Pakistani government, the two nations remain as suspicious of each other as ever.

North Korea is another source of a potential nuclear war. The nation makes a habit of antagonizing nearly every other country in the world, projecting an irrational image, and seems to perpetually be on the verge of either a power transfer or total collapse. In my opinion, the greater danger is an accidental nuclear launch against South Korea or Japan, rather than a directive from North Korea’s leadership. Little is known about North Korea’s nuclear weaponry, but it is unlikely that such an impoverished nation has adequate safeguards in place to prevent a Dr. Strangelove-style strike ordered by a rogue commander. If a North Korean weapon was used on South Korea or Japan, the United States would almost certainly respond with nuclear force of its own.

Another potential source of international conflict is between Israel and Iran. If Iran eventually gains nuclear weapons (as I think it will), either Iran or Israel may be tempted to strike the other first to solidify its position as the preeminent nuclear power in the Middle East. However, in my opinion conflict is unlikely, because neither Israel nor Iran would truly gain much from a nuclear exchange. It is far more likely that the two nations would come to an uneasy truce than fight a nuclear war.

But the greater danger comes from nuclear terrorism, rather than nuclear war. While far less destructive, it is also far more likely. Warren Buffett stated in 2002 that he believed an eventual nuclear attack on US soil was a “virtual certainty.” While I am not quite that pessimistic, it is hardly unthinkable.

Where could terrorists obtain nuclear weapons? Three nuclear powers – Russia, Pakistan, and North Korea – have had difficulty maintaining control of their stockpile, thus allowing the possibility of a nuclear black market. When the Soviet Union collapsed, the nuclear material was spread amongst four nations (Russia, Kazakhstan, the Ukraine, and Belarus). A small amount of it has never been accounted for. It may still be changing hands on the black market. North Korea and Pakistan pose even greater threats. North Korea may be on the verge of total state collapse. If the nation collapses and the neighboring powers do not take immediate action to secure its nuclear supplies, it is plausible that terrorists could eventually gain access to this material. The Pakistani government is increasingly unstable, and many elements of the military are sympathetic to terrorist groups. Many parts of the nation are not controlled by the central government. Furthermore, Pakistani nuclear officials under A.Q. Khan have a history of selling nuclear material on the black market.

While the end of the Cold War greatly reduced the threat of a nuclear conflict, the trend has now reversed as nuclear weapons continue to proliferate, especially in unstable regimes. The use of nuclear weapons is becoming more likely with each passing year. While I doubt that any terrorist groups have access to nuclear weapons yet, I think the day is coming in the near future unless the world takes immediate action to reverse the trend.

BLACK SWAN EVENTS:
A nuclear weapon is detonated in a major world city by 2030 –
Probability: 50%
A nuclear war (defined as a nuclear attack and counterattack) occurs by 2030 –
Probability: 30%

Friday, May 28, 2010

Black Swans


When predictions about the future are incorrect, it is often because the predictor assumed that history wouldn’t provide us with any surprises, which it almost invariably does. Nassim Nicholas Taleb refers to these events as black swans. It is extremely difficult to predict them in advance, but they have a drastic impact on world history. Examples include 9/11, the AIDS pandemic, the Islamic Revolution in Iran, the invention of nuclear weapons, the stock market crash of 1929, the 1918 Spanish Flu pandemic, or the outbreak of World War I.

You may notice that most of the events on this list are widely considered to be disasters. As Warren Buffett has said, “Surprises are nearly always bad.” However, this isn’t universally true. There are, on rare occasions, examples of positive black swan events.

For example, in 1968 Paul Ehrlich wrote The Population Bomb, which predicted a nightmarish future of overpopulation and mass famine. Ehrlich looked at the global population trends from recent decades and saw that people were reproducing at an alarmingly fast rate. Yet within just a few years of the book’s publication, global birth rates began to decline and the global food supply increased exponentially. Ehrlich completely missed two very important “positive” black swans: The widespread adoption of the birth control pill and the Green Revolution in India.

The purpose of thinking about potential black swan events is to plan for events that are individually unlikely to occur, but would have a profound impact on the world if they do. I’ve thought of a few black swan events to think about for the next decade:

• A nuclear war between India and Pakistan
• The democratization or fragmentation of China
• Ecological collapse, followed or preceded by abrupt climate change
• Bioterror or bioerror releases a manmade super-plague
• The invention of effective anti-aging medicine offers indefinite lifespans
• The assassination of a major world leader
• An especially nasty strain of avian or swine flu results in a global pandemic
• An American state votes to secede from the union
• A global financial collapse

Depressing, huh? I tend to agree with Buffett that surprises tend to be bad (with some exceptions). Positive events tend to be much more incremental and predictable than negative events. You may believe the events on my list are all unlikely to occur in the next decade, as I do, but that’s the whole point. We must anticipate unlikely events and make contingency plans in case they occur. Life's surprises can be just as important as its long-term trends.

What do you think are some other black swan events that could conceivably occur in the next decade?