Black Swans and Dark Matter

The thing that irritates me particularly about the “Black Swan” metaphor is that it implies that on discovering the Australian black swan, ornithologists were like “OMG! All of our previously held theories about swan colour are falsified! We will have to rewrite the history books! Previously we had believed that swans were a priori white and that a swan of any other colour was impossible!”.

And I bet they didn’t. I bet they just went “ooh, a new kind of swan, that’s interesting”. I would even slightly extend the bet to suggest that no actual ornithologist[1] ever made any universal predictions about swan colour.

[1] As opposed to amateurs like Juvenal who IIRC[2] used “black swan” as a metaphor for something rare (as opposed to actually impossible)

[2] All right, I gleaned this from Wikipedia, are you happy now?

The surprising, not-advance-predictable thing about recession is surely not that US housing market bubble losses were borne by $someone_unexpected (that was pretty obvious by about 2005), but that losses in the $1trn order of magnitude (ie 5-10% of US GDP) – a relatively small sum compared to the size of the global financial system – have triggered its collapse…?

This is the bit where my head starts spinning, though. Total equity listed on the NYSE in 2005 was US$13trn, plus US$4trn on the NASDAQ and US$3trn on the LSE, meaning that a not-at-all unlikely 10%-20% fall in stock prices would have destroyed twice as much as the house-bubble-burst in pretend money.

Why does a US$1trn fall in house values make the whole system collapse, when the destruction of far greater asset values (also with leverage involved, unless I’m radically misunderstanding how investment funds work) in stock markets hasn’t had the same impact?

John B.,

There is a very fine fault line between skating on thin ice and walking on water. So, yes. Most likely.

Total equity listed on the NYSE in 2005 was US$13trn, plus US$4trn on the NASDAQ and US$3trn on the LSE, meaning that a not-at-all unlikely 10%-20% fall in stock prices would have destroyed twice as much as the house-bubble-burst in pretend money.

Not sure what this statistic is relevant to; this is market capitalisation of equity markets rather than shareholders’ funds of the banking system, right?

“Hot potato”? “Musical chairs”? “House of cards”? While a cliche, “house of cards” strikes me as very apt – it’s beautiful while the house is being built, and it’s clear it’ll all collapse at some point, but not exactly when or how – and anyone who says “it’s all going to crash” is a killjoy.

dsquared #1: Whatever the reactions of scientific theorists surprised by the discovery of black swans, you can be certain it wasn’t anything like: ““OMG! All of our previously held theories about swan colour are falsified! We will have to rewrite the history books! Previously we had believed that swans were a priori white and that a swan of any other colour was impossible!”.

A more plausible reaction from theorists, as I think Paul Feyerabend first noted, would have been: “You call THAT a swan!? THAT bird is not a swan! For a start, it’s the wrong colour.”

John Q – try this recent piece in the FT on: Why policymakers should have known better, by Sushil Wadhwani:

” . . Over the past decade, while the bubbles were emerging, it was frequently argued that central bankers have neither more information nor greater expertise in valuing an asset than private market participants. This was often one of the primary explanations for why central banks were not attempting to ‘lean against the wind’ with respect to emerging bubbles.

“As I argue in my recent National Institute article, had central banks raised interest rates by more than was justified by a fixed-horizon inflation target while house prices were rising above most conventional valuation measures, it is likely that the size of the eventual bubble would have been smaller. At least as importantly, because of the fear of being seen as ‘market-unfriendly’, fiscal and regulatory policy did not lean against the wind either. Our economies would plausibly have exhibited greater stability if tax policy were used in an anti-bubble fashion (eg a counter-cyclical land tax) and if regulatory policy were more activist (eg a ceiling on loan-value ratios) and contra-cyclical (eg time-varying bank capital requirements). . .”

In Monday’s news, a deputy governor of the Bank of England, John Gieve, is saying that the Bank didn’t really understand the significance of the burgeoning consumers’ indebtedness (which has reached £1.4 trillion, about equal to Britain’s annual GDP) and the associated house-price bubble – the relating news reports can be easily retrieved by searching Google news for: Gieve

I find all that curious in the light of this news report back in 2002:

“CHARLES GOODHART, a former member of the Bank of England’s monetary policy committee, warned yesterday that the Bank is failing to take sufficient account of the house price boom in setting interest rates.

“His warning comes amid growing fears among economists that house prices, fuelled by the lowest interest rates for 38 years, are getting out of control. Yesterday, new figures showed that homeowners are borrowing record amounts against the rising value of their homes. . . ”
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2002/04/06/cngood06.xml

It’s instructive to retrieve other news reports concerning commentary by Charles Goodhart so I’m very surprised that the Bank of England is now claiming it didn’t properly understand the significance of the house-price bubble.

Like Brad and Brad, I expected that the problems would emerge first in the form of a run on the US dollar…

I think you’re really stretching it to say, “We saw this coming”, since what was expected — a collapse in the dollar — didn’t happen. And DeLong, at least, didn’t even come close to grasping the potential for the systemic effects of the collapse of the housing bubble. In fact, DeLong advanced the theory that the rise in housing prices was explained in some areas by underlying value — that the desirability of living in coastal regions in the U.S. had risen and that the price increases reflected that demand.

But of course the reason such a thing had never occurred was that local housing markets had been separate from each other, with their own sets of banks, S&Ls and other financial institutions.

But it wasn’t the banking that made housing markets in the U.S. distinct, it was government and economic conditions (density, zoning laws, local economic conditions). And, actually, the housing markets remain distinct. Most of the U.S. did not participate in the housing bubble to nearly the same extent as the ‘sand states’. Most U.S. states have nothing at all comparable to, say, California’s Riverside County:

Seven hard-hit states — Arizona, California, Florida, Georgia, Michigan, Nevada and Ohio — had 64 percent of all “underwater” borrowers, but just 41 percent of U.S. mortgages.

“This is very much a regional problem, and people tend to forget that,” said David Wyss, chief economist at Standard & Poor’s, who expects home prices nationwide to fall another 10 percent before bottoming late next year.

Nevada was hardest hit, where mortgage borrowers on average owed 89 percent of what their homes were worth, and 48 percent had negative equity. Michigan was second, with an 85 percent loan-to-value ratio and 39 percent of borrowers underwater.

New York fared best, with an average 48 percent loan-to-value ratio and just 4.4 percent of mortgage borrowers with negative equity.

http://www.reuters.com/articlePrint?articleId=USTRE49S3Q520081031

That’s a huge regional variation between a state with 4% of borrowers having negative equity vs 48%. But the bad news is that even though foreclosures and negative equity are concentrated in a few states (and even counties within those states), the sum total was still big enough to precipitate the collapse of mortgage-backed securities and the banking crisis.

“couldn’t fail except in the event of a simultaneous downturn in all major housing markets in the US, something that had never been observed, and therefore could not be included in the models. But of course the reason such a thing had never occurred was that local housing markets had been separate from each other, with their own sets of banks, S&Ls and other financial institutions. The very banks that were doing the modelling were creating the conditions under which a national bubble and bust could take place. This was both foreseeable and foreseen.”

Interesting point which I hadn’t seen before.

However, I’m rather with Slocum here. While I agree that the various local markets are more integrated than they were they’re still not all that much.

http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,1,1,0,0,0,0,0.html

The city based Case Shiller indices have Atlanta at 125 in early 2005, peak at 136, now at 122. Dallas 117, now 121 and peak 125. Compare that to the bubble in Vegas.

So more integrated now, yes, but not very much as yet.

Buying shares on margin and buying a house with a mortgage are both a sort of hypothecation

More important than the leverage is the fact that margins are call money and mortgages are term finance. Margin loans have variation margin to maintain a constant level of collateralisation, whereas a mortgage can go way underwater and if it’s kept current, the lender has very limited ability to do anything about the undercollateralisation.

Mr Emerson: do you know about “depressive realism”?

…legally favored, that is.

something that had never been observed, and therefore could not be included in the models.

Is this descriptive or sarcastic? I don’t know anything about economic modeling but from a layperson’s perspective that sounds insane. I would buy “it was hard to talk other people into including it in the models,” or “that factor includes a lot of variables and nobody included it in the modeling because they couldn’t figure out how to account for them,” maybe.

Otherwise it sounds disturbingly like “But there has never been a Category 5 hurricane followed by another hurricane in New Orleans so how could we have modeled it?”

Anyone familiar with Herbert Stein’s law – “If something cannot go on forever, it will stop” – knew that there was a housing bubble that would have to end. How precisely it would end and how badly it would end were not easily predictable but anyone who claims that the bubble itself was undetectable is lying.

26: something that had never been observed, and therefore could not be included in the models.

Maybe it was one of the things that was left out of the model in order to get better results. Economists love counterfactual assumptions and theoretical fictions.

A friend of mine said that he went into an auto shop in [a certain third world country] and saw a bucket of miscellaneous parts in the corner of the room. He asked what it was and they told him it was the leftover parts from engines they’d reassembled. That’s how economics works. If you don’t know what to do with something, you just throw it into the anti-model.

I suppose “rare bird” is a genuine expression in the US, of the sort you see in punning newspaper headlines and nowhere else.

“I bet they just went “ooh, a new kind of swan, that’s interesting”. ”

Isnt that just what alot of economists are doing in relation to this crisis?

something that had never been observed, and therefore could not be included in the models.

AFAIK this was more or less standard methodology in geology until the middle of the last century. Uniformitarianism, as propounded by Lyell in 1830, was the name of the game. Nobody had ever seen a glacial lake collapse and create Scablands, so it couldn’t happen. Nobody had ever witnessed an asteroid impact big enough to create a damn great iridium spike, so the dinosaurs must have been the victims of global cooling.

So it isn’t as if the economic modellers were uniquely obtuse; just that they were 40 years out of date. And thereby hangs a tale.

In a world where no one took “Dow 36000” seriously, I really doubt that this would have happened, but this is a world in which lots of people believed that stuff.

Unfortunately, I don’t think the actual kind of world where lots of people fall for that kind of thing is going to go away unless we’re replaced by a species whose brains are wired rather differently. I think there’s much reason to believe that something in human psychology makes bubbles inevitable.

OK, I’ll stipulate that we can get rid of bubbles if we eliminate money. (Where’s Gene Roddenberry when you need him?) ;)

Modern bourgeois society, with its relations of production, of exchange and of property, a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells. For many a decade past, the history of industry and commerce is but the history of the revolt of modern productive forces against modern conditions of production, against the property relations that are the conditions for the existence of the bourgeois and of its rule. It is enough to mention the commercial crises that, by their periodical return, put the existence of the entire bourgeois society on its trial, each time more threateningly. In these crises, a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity — the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed. And why? Because there is too much civilization, too much means of subsistence, too much industry, too much commerce. The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions, by which they are fettered, and so soon as they overcome these fetters, they bring disorder into the whole of bourgeois society, endanger the existence of bourgeois property. The conditions of bourgeois society are too narrow to comprise the wealth created by them. And how does the bourgeoisie get over these crises? On the one hand, by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.

to be fair, wasn’t uniformitarianism a pushback against geologists (or whoever) simply invoking convenient earthquakes or floods to explain anomalous evidence? as in “things maintain a steady state until we can prove otherwise”? steady-state was an essential jigsaw piece in the realisation that the earth wasn’t created in 4004BC, complete with convulsions that made it look older

Sorry, John, Brad, and Brad, but credit where credit is due: the clearest, earliest, most persistent, and most plausible prophets of a global financial meltdown were Loren Goldner, Michael Hudson, Doug Noland, and Nouriel Roubini.

i remember my dad telling me how exciting it was when the wegener theory of continental drift got accepted — more or less (as he told it) overnight: there was a big conference (1965?) where everyone expected everyone else to be rubbishing it, and that they’d be the only person giving a paper in its favour — in the event there were a dozen papers arguing for it from different perspectives, and venerable greyhairs woke up to find a life’s work was suddenly nonsense

Same with tectonics. My brother was trained in tectonic geology, and he was quite amused to find a pre-tectonic geology text in a used bookstore. Because they were still able to explain everything.

It’ s sort of funny that the return of geological catastrophism is type case of a paradigm shift or epistemic transition. As Foucault might have said, when gradualism disappeared, it collapsed suddenly rather than gradually dwindling away.

I’m looking forward to tectonic economics.

300,000 thousand years of human beings, 300 years of financial crises, was how I was looking at it. In retrospect 1% might be better — but on the other hand for most of thsoe alst 300 years most of the world wasn’t experiencing speculative bubbles either.

The point is that human societies have found a great many ways to organize productive activities, only a small minority of which involve financial assets of a sort suitable for bubbles.

My Luddite feeling is that ever since 1980 the entire global economy has prioritized high return at the cost of accepting high risk.

I’d be happy to see someone argue that a boom and bust economy is a good thing if, on the net, there’s good growth. If I’m not mistaken that’s the Mellon-Hoover “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate” creative destruction strategy. It’s impossible to argue politically, but as we know politics is bad and makes the economy less efficient.

The collapse of the Bardi bank in 1353?

The bankruptcy of the Peruzzi in 1374?

Dunno. Were they the result of speculative bubbles? There are lots of ways for banks to fail.

Anyway, I stand by the point that the conditions for asset bubbles are a lot narrower than the existence of human beings.

“The geology establishment was resistant to a such a sweeping theory for the origin of a broad landscape for a variety of reasons, including lack of familiarity with the remote areas of the interior Pacific Northwest where the research was based, and the lack of status and reputation of Bretz in the eyes of the largely Ivy League-based geology establishment.”

In other words, they had three different bad reasons for rejecting Bretz’s theory. Uniformitarianism was actually the best of the three.

Anyway, I stand by the point that the conditions for asset bubbles are a lot narrower than the existence of human beings.

I can’t see how this is contentious, or particularly interesting: some aspects commonplace to lots of currently living humans haven’t existed at all for most of human history. More to the point, is there a significant period of time in human history that has both the necessary conditions for a asset bubble to exist, and no asset bubbles?

Sorry for the second straight blockquote tag screwup, I just don’t seem to be capable of typing “/” today. Which perhaps illustrates my point, at least as regards myself…

bretz lived to see his idea vindicated, which was probably a nice feeling — wegener not so lucky (he died in a blizzard in greenland) (possibly at the feet of the mountains of madness)

According to that fount of all knowledge, Wikipedia, the black swan metaphor originated with Juvenal. Perhaps an English reader could report on whether the expression “a bird rare in the land” is a genuine proverb:

This is the sort of think Wikipedia is usually wrong about, and sure enough, the black swan as an impossibile appears at least as early as Ovid:

si dubitem faveas quin his, o Maxime, dictis,
Memnonio cycnos esse colore putem (Ex P. 3.3.95-6)

[If I doubted that you looked favorably on these words, Maximus, I could think that swans had the color of Memnon [i.e., black, since Memnon was an Ethiopian]).

And I’m pretty sure it’s not original in Ovid either, but rather comes from a Greek source, though I don’t remember what. You may now continue to discuss economics.

Dying in a blizzard in Greenland is the geologist’s equivalent of dying with your boots on, of course. It would have been REALLY sad if he’d died crossing the street in a crosswalk or something.

Bretz arranged to live to 95 or so. Good planning.

I really didn’t mean to divert this thread into a discussion of geological theory, although I’m grateful to have learned some interesting history from Belle. My point was that there’s a real problem, whether you’re dealing in contemporary economics or Cretaceous geology, in creating models that incorporate unfamiliar mechanisms, precisely because they are unfamiliar. With the lessons of Wegener, Bretz and Alvarez before them, geologists seem to me (I’m not a geologist) to be rather more circumspect than of yore; but economists don’t – no disrespect to Professor Quiggin. What I see instead is a faction who would have been generally in favour of interventionism anyway (Krugman et al.) saying “told you so”, while the bitter end free marketers invent just so stories about how the New Deal was no big deal.

But who is extrapolating from the data to suggest how to prevent this happening again?

(Full disclosure: in my youth I was unduly influenced by serious catastophists like Andy Glyn, Bob Sutcliffe and John Harrison. I want somebody to tell me if/why they were basically wrong.)

There are piles of Cassandras for every human choice. Certainly there’s a lot of people actively predicting disaster if we don’t go back to the gold standard. In fact, we’ve got a bunch stating we have to go back to an agrarian lifestyle or the whole race faces doom. Why aren’t we listening to them as well?

Mainly because, lacking any expert knowledge ourselves, we have to rely on the consensus of the community of experts. Sadly, those who predicted this crisis did not have strong enough arguments to persuade the community of economists that their view was right.

To my mind, we have three outcomes:

(1) The claim that the crisis was obviously imminent is wrong. It wasn’t obvious to the vast majority of experts in the field.

(2) The community of experts is not smart enough to be able to comprehend the complexity of the reality of the situation.

(3) The community of experts is too biased to be able to examine the facts realistically.

(1) means essentially that this was a black swan – the experts got it wrong because there was no unbiased way of distinguishing ‘good’ Cassandras from ‘bad’ ones.

(2) + (3) mean that the profession of economics is screwed up and essentially the banks should have ignored all the experts. (After all, how can non-experts tell the smart/unbiased experts from the others?) In this case, with no accurate models possible (or more accurately, no way of telling accurate models from inaccurate models) the banks might as well guess optimistically. Especially since pessimistic CEOs are going to fired after the first year or two of profits that are substantially less than their peers. (After all, if the experts couldn’t persuade people that things are too risky, what chance does a non-expert like a CEO have?)

As far as I can tell, no-one laid out the precise sequence, in advance, which we would go through. But that’s a bit like Condoleeza Rice asserting to the 9/11 Commission that if only, if only, someone had given her the precise number of hijackers and the actual flights they planned to commandeer then, by gum, as National Security Advisor she’d certainly have put a stop to it. But they didn’t, so what could you do? OK, a month before a PDB had been put out which had said “Bin Laden determined to strike in the US,” but it wasn’t specific, was it?

If you were reading Roubini/Setser, or Calculated Risk/Tanta (sadly missed), by mid 2006 you knew that some really nasty stresses were in the system. Mortgage Equity Withdrawal, negative savings ratios, the strains of Bretton Woods II – these pointed many people towards the notion that the catalyst would be the end of what Larry Summers referred to as “Mutually Assured Financial Destruction,” with the foreign creditors yanking the US chain.

Instead, what most of us missed, because we most of us were simply completely and thoroughly unaware of it, was the coupled dark matter/dark energy of the “shadow banking system,” the interplay between CDSs and CDOs, and the way liquidity could disappear and solvency evaporate and we wouldn’t know which came first or even which was which. Robert Rubin is said to have had to have had the term “liquidity put” explained to him: the risks his bank was running had been, to that point, literally inconceivable to him.

In the aftermath of a tragedy, cause and effect are obvious. Tufte has a fine example on the kind of graphic displays the Morton Thiokol engineers might have used to try to persuade their counterparts at Nasa not to launch the Columbia in 1986. Instead, they spoke of their fears, were heard out, and over-ridden – not by fools, but by honest people who couldn’t fit the evidence they had into their imagination in the right way. In hindsight it’s obvious, but at the time, not so much. Don’t see much erring on the side of caution, though, in 2001 or 2006-2008.

Lemuel Pitkin but on the other hand for most of thsoe alst 300 years most of the world wasn’t experiencing speculative bubbles either.

Be careful – just because something wasn’t written down doesn’t mean it didn’t happen. And particularly, just because something wasn’t written down in English doesn’t mean it didn’t happen. I am looking forward to China and India getting rich enough that they can afford to throw hordes of money at their social scientists like the Americans do (and before someone shows up grumbling about their lack of funding in the USA, my baseline is NZ ).

More scientifically, bubbles have been easily recreated in labs: http://www.theatlantic.com/doc/200812/financial-bubbles
Admittedly this is based on a study of Americans, and it may be that different cultures would show different results.

Maybe John our predictions would be more defensible in hindsight if we had a get-out-of-jail-free card like the right wingers have. The Dow would be 36000 by now if government policy hadn’t enabled minorities to buy houses, you know!

We could try this. e.g. sea level rose 3cm more than predicted because govt policy enabled minorities to emit more co2 than we allowed for in our model!

I like this new requirement, a la slocum et al, that to claim success in predicting a collapse you have to predict all the details of how it happened. That’s the kind of optimism which will definitely help us to avoid the next one.

But being right about the details matters — it’s not enough to have a general sense of foreboding matters. Returning to the ‘Scary Story’ that Quiggin linked to about securitization:

http://www.johnquiggin.com/archives/000186.html

In it, he specifically identifies the unusual U.S. practice of taking out fixed rate mortgages as a particular problem. But if we had acted on that belief that fixed rate mortgages were dangerous, we would have done the wrong thing, wouldn’t we? If we’d taken actions to discourage fixed rate mortgages and encourage variable rate mortgages, is there really any doubt that the problem would have been worse?

Yes, low-interest rate mortgages drop in value if interest rates rise — but so do low-interest rate bonds. So do T-bills. There are a lot of T-bills being issued and sold right now that may come to be worth much less, and investors stand to lose a lot. Twas ever thus. But, on the other side of the equation, fixed rate mortgages give buyers not only predictability but mortgage costs that decline in real terms over the life of the mortgage (because, for example, a fixed monthly payment of $1200 in 2008 dollars us significantly less than the same $1200 was in 1998 when the mortgage was taken out). With fixed rate mortgages, no borrowers are thrown into foreclosure by unexpectedly high rate resets. So which is more dangerous to the economy, losses to investors on bonds, or massive defaults by mortgage holders? Sure looks like the latter now, doesn’t it? Many proposals now involve moving homeowners from variable into fixed rate mortgages–does Quiggin still think that is a mistake?

Predictions of doom without getting the details right strike me as pretty useless.

I think Bloix in the very first post had it dead on. I don’t know of any economists who claimed it could go on forever. But that wasn’t the question, after all, pretty much nothing we do can go on forever. The question, and what had to be proven strongly by the ‘Cassandras’ was that it was going to end catastrophically.

Certainly I was reading economists around the web and I heard lots of “it’s going to end” and a fair amount of “I hope it’s going to end softly”. But I didn’t see economists debating seriously any particular evidence of a catastrophic landing. (Most seemed to think a Roubini like outcome was a possibility, but not anything like the certainty necessary to justify painful economic policy.

I honestly can’t see any way of having insulated ourselves from this catastrophe except by massively decreasing the amount of risk taken on every possible front, which would, of course, meant a massive loss of economic wealth. And in the end, probably for no reason. After all, someone *somewhere* would have taken the risk, reaped massive rewards and ended up taking out all the conservative banks and then taken everyone else with them anyway.

(Can you tell I’m Canadian? We had a moderately well behaved banking system. It didn’t help. We’ll go down the same path as everyone else, except we didn’t make out like bandits while the going was good. Well, at least while we’re eating our catfood we’ll have moral superiority . We’re good at that :-))

I think that if such policies had been adopted, they would have reduced the severity of the crisis (though possibly bringing it on earlier).

There’s no doubt in my mind that you’re correct on both points. The case that has to be made (and I don’t know if it really can be), is whether the gain from dampening the severity of financial crises (which, as a pessimist, I’m convinced are unavoidable) is worth the loss of wealth produced by these innovations.

Moreover, the real problem with choosing stability over wealth is that inevitably we take the stability for granted and see only the lost wealth. It’s a little like taking medicine for severe mental illness. After taking them for a while, you feel normal enough that you can’t understand why you have to take the medicine (and endure the unpleasant side effects).

Not that finance and economics is any different from any other field. Mankind is bright enough to constantly increase our efficiency, which means that the good times are much better, and when the inevitable disaster strikes, we’re much further up the creek without a paddle. To take a page from Homer Dixon, I’d rather take a jet plane than walk, but when the malfunction finally occurs, I’d rather trip over my feet than slam into the ground at 1,000 km/h.

sg,

“I like this new requirement, a la slocum et al, that to claim success in predicting a collapse you have to predict all the details of how it happened. That’s the kind of optimism which will definitely help us to avoid the next one.

I presume 100 years from now there will be a neo-slocum claiming that climate scientists didn’t predict anything, because they got the final equilibrium height of the oceans 3 cm wrong, or somesuch…”

I am curious if someone a 100 years from now provided a link in which they claimed to have predicted the disastrous consequences of global warming and it looked something like this

“On the other hand, the full-scale meltdown scenario[global environmental catastrophe], while far more plausible today than even a year ago, remains a low probability event.”

“How likely is it to happen? In view of the extent to which standards have been compromised in the financial world, some significant breakdown in derivative markets, leading to the failure of at least some players, seems more likely than not. On the other hand, the full-scale meltdown scenario, while far more plausible today than even a year ago, remains a low probability event.”

and someone objected that the provided quote wasn’t really a very good example of predicting global environmental catastrophe how would you respond?

Plenty of people thought there was a real estate bubble. I thought there was bubble back in 2002 when I bought my house and if you would have asked me what would happen when the bubble burst in 2006/2007 I would have replied bad news for the economy.

Kieran Healy with all his typical charity wrote a post mocking David Bernstein for frequently writing about the real estate bubble.

Here is a link to an instance of Professor Bernstein warning about a real estate bubble back in 2005

http://volokh.com/archives/archive_2005_08_14-2005_08_20.shtml#1124513110

Professor Quiggin’s circle of Cassandras that were correct and disregarded is pretty darn large and diverse.

The group of Cassandra’s who linked housing derivatives with the housing bubble and predicted a very large banking crisis is quite a bit smaller.

Those are pretty crucial details. Not a difference’s of 3 cms in the Oceans height.