Black swan events were first proposed immediately prior to the global financial crisis by former Wall Street trader and author Nassim Nicholas Taleb. They have three characteristics: the event lies outside the realm of regular expectations; the event has an extreme impact; and the event is rationalised as being predictable in hindsight.
Since Mr Taleb coined the term, it has been diluted to encompass things that might happen but probably won’t (“grey swans”), things that definitely will happen (“white swans”), and climate risk (“green swans”).
The coronavirus outbreak is being heralded by many outlets and organisations as a black swan. It certainly arrives at a bad time; everybody was just beginning to relax about the possibility of a hard Brexit, a shooting war in the Middle East, and the possible impeachment of President Donald Trump. And while its long-term impacts are still unknown, it could easily kneecap the Chinese economy at a time when it’s the main driver of global growth.
But it doesn’t quite fit the bill, because it breaks that first rule: a pandemic impacting the global economy was not a matter of if, but when. And while this might sound like a rationalisation of the event as predictable in hindsight, it’s not.
Global pandemics aren’t an outlier, and neither are their effects. Even when the primary means of trade and travel was tall ship, the spread of deadly viruses was a significant threat. The Black Plague killed over a hundred million people – and while everybody has started washing their hands a lot more since then, the threat (and chance) of a global pandemic has only grown as intercontinental travel time has collapsed down to the length of days, if not hours.
“If it is true to say ‘what’s past is prologue’, then there is a very real threat of a rapidly moving, highly lethal pandemic of a respiratory pathogen killing 50 to 80 million people and wiping out nearly 5 per cent of the world’s economy,” the World Health Organisation wrote in its Global Preparedness Report in 2019.
“The world is not prepared.”
And while the coronavirus is yet to wipe out 50 to 80 million people – it hasn’t quite hit 1,000 yet – the economic damage is already severe. It’s hard to believe that the modern, interconnected world is vulnerable to something that has been killing people since before we were walking around on two legs. But the fact that markets have been caught off-guard only reflects complacency, not unpredictability.
