The Last Word

IT’S THE END OF THE WORLD AS WE KNOW IT, AGAIN. AND I FEEL FINE…

BBC Earth (Asia) - - Contents -

Robert Matthews on pre­dict­ing the un­pre­dictable

Ten years ago this month, an event took place in Paris which sig­nalled the start of EOTWAWKI. No, it’s not a Maori fes­ti­val; it’s some­thing much less fun: The End Of The World As We Know It.

In Au­gust 2007, a French in­vest­ment bank told some of its clients they couldn’t get ac­cess to $1.5bn of their own money. While un­doubt­edly bad news for those in­volved, it didn’t seem like a huge story for the rest of us. But what hap­pened on that Thurs­day af­ter­noon is now widely seen as the start of the Global Fi­nan­cial Cri­sis.

Over the fol­low­ing year, tril­lions of dol­lars of wealth eva­po­rated, global fi­nan­cial in­sti­tu­tions went bust and the world’s econ­omy teetered on the brink. The cause was the dis­cov­ery that vast fi­nan­cial bets had been made by banks about the health of US hous­ing mar­ket. Bets that were com­plex, in­ter­con­nected and, frankly, stupid.

And when they started to go wrong, the con­se­quences went global – and changed the world for­ever.

Now there’s talk of EOTWAWKI com­ing around again. This time, it’s soar­ing con­sumer debt that’s prompt­ing con­cern. From car loans to credit cards, lev­els of debt are soar­ing again.

So, is The End nigh – again? Un­likely. Sure, there are lots of pun­dits pre­dict­ing it, but then there al­ways are. What they’ve missed is the fact that we re­ally did ex­pe­ri­ence EOTWAWKI in 2007. Not the end of the world as in Ar­maged­don, but lit­er­ally the end of the world as we used to know it.

Back then, many ex­perts thought it was pos­si­ble to make pre­dic­tions about, say, the US hous­ing mar­ket, and make bets – and money – ac­cord­ingly. Some even thought they could tell when the econ­omy was in trou­ble. Not any more. Now, fi­nan­cial reg­u­la­tors and cen­tral banks are far more scep­ti­cal about eco­nomic forecasts and the re­li­a­bil­ity of fi­nan­cial models. Most have come to ac­cept that another cri­sis is pretty much cer­tain, but that it’s also pretty much cer­tain that no one can say with any de­gree of con­fi­dence when it will strike.

So, reg­u­la­tors now in­sist that banks keep a greater chunk of their wealth sit­ting in their vaults for when the in­evitable hap­pens. They also have to un­dergo reg­u­lar ‘stress tests’ which sim­u­late the im­pact of se­vere down­turns. A close eye is also kept on smart-aleck bets of the kind that caused may­hem a decade ago.

None of this is guar­an­teed to stop a re­peat of 2007, but it does re­duce the risk. And when it comes to deal­ing with uncer­tainty, that’s as good as it gets. It’s an at­ti­tude that’s gain­ing trac­tion else­where – and not be­fore time. After spend­ing decades and bil­lions try­ing to pre­dict nat­u­ral dis­as­ters like droughts, storms and earth­quakes, gov­ern­ments are in­creas­ingly fo­cus­ing on iden­ti­fy­ing the high-risk ar­eas, and tak­ing ac­tion ahead of time.

At­ti­tudes to global warm­ing are also chang­ing. De­spite decades of ef­fort, it’s clear that cli­mate models still strug­gle with the com­plex­ity of pre­dict­ing the fu­ture in de­tail. What is clear is that we can’t carry on the way we are, and must act now to re­duce the risk of dis­as­ter. That’s a truth that is recog­nised in the much-ma­ligned Paris cli­mate ac­cord, which calls not only for re­duc­tions in green­house emis­sions, but also ef­forts to adapt to a warmer world.

We may be wit­ness­ing a rev­o­lu­tion in the way hu­man­ity deals with the in­evitable un­cer­tain­ties of life in a com­plex world. Pre­dic­tion is giv­ing way to adap­ta­tion. If so, it’s a case of back to the fu­ture. Our knuckle-graz­ing an­ces­tors never kid­ded them­selves they knew what the fu­ture held. They just adapted to what­ever their gods hurled their way, from floods to Ice Ages. It’s taken us 10,000 years to re­alise they were right.

Still, bet­ter late than never.

“WE MAY BE WIT­NESS­ING A REV­O­LU­TION IN THE WAY HU­MAN­ITY

DEALS WITH THE IN­EVITABLE UN­CER­TAIN­TIES OF LIFE IN A COM­PLEX

WORLD”

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