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Black Swan or Red Dragon
By Frank Tian Xie |
October 19, 2016 AT 2:53 AM
Last Updated: October 19, 2016 2:53 am
Black Swans in Taiwan. (Jiayi Wang/Epoch Times)
A couple of weeks ago, a Canadian reporter from Vancouver
asked me a question about the black swans that seem to be emerging all
over the place at an alarming rate, for example, as she said, the
Brexit, the bombing in France, a Trump in the White House, Fed interest
rate hike in December, Deutsche Bank crisis, and large scale terror
attacks, to name a few. But, if there are many, many black swans
appearing, by definition, they should not be called “black swan”
anymore, as black swan is supposed to be rare, unusual, and
consequential events that occur not too often. Well, we as humanity are
in fact in an unusually precarious and delicate situation today, and the
old rule about the black swan may just be broken as we speak. As someone with Geology training as an undergraduate student, I would
think a potential super quake in south Asia as a black swan, as warned
by scientists from Columbia University. They found evidence that a super
earthquake is being shaped up underground in Bangladeshi, a country
with extremely high population density. There is not much seismic data
from that region of the globe, so scientist could not give a time window
for it to take place. But, if it does take place, it is going to be an
8.2 to 9 quake on Richter scale and 140 million people might be
affected! Black swan or Black swan theory was first used to describe as a
metaphor, a simile, or a hint on an event that takes place all of a
sudden and has tremendous impact, that people become aware of it often
in hindsight. Because in the West in ancient times, people thought all
swans were with white feathers, and black ones nonexistent. Then in
1697, after the Dutch explorer Willem de Vlamingh spotted a black swan
in Western Australia, the theory took on a new explanation, denoting
something highly unlikely but not at all impossible. Nassim Nicholas Taleb is the founder of the black swan theory, he
defined it as having the “The disproportionate role of high-profile,
hard-to-predict, and rare events that are beyond the realm of normal
expectations in history, science, finance, and technology”, and “The
non-computability of the probability of the consequential rare events
using scientific methods (owing to the very nature of small
probabilities). In 2007, Taleb first used the term to describe unexpected events in
the financial world, and then extended it to describe new discoveries in
science and breakthroughs in arts, etc. The emergence of the Internet,
personal computer, the assassination of Archduke Ferdinand before World
War I, the collapse of the Soviet Union, the death of Alexander the
Great, the arrival of the Europeans to Aztecs, the sinking of the
“unsinkable” Titanic, and the 911 attack on twin towers in New York
City, are all considered by Taleb to be examples of black swan. Taleb’s definition of a “black swan” event has three components:
first, it’s an exception, beyond the expectation of people, and there is
no past event that can substantiate its occurrence in a convincing way.
Second, it has huge and extremely important impact. And thirdly, even
though it is an exception, people seem to be able to give quite
plausible explanations in hindsight, making it look like something that
can be explained and even predicted. If, by the definition and observation of Taleb, that the collapse of
the Soviet Union can be considered a black swan, then what about the
collapse or disintegration of the Chinese Communist Party?! It must also
be remarked as an even larger, more important, and more profound black
swan event for humanity. This is so because the CCP is the last major
link in the international communist movement, and CCP is also the
largest in party membership among all communist and socialist states in
the world. As the last and final communist regime in human history, the
CCP has viciously and brutally endangered and massacred 70 million
Chinese people in its 60 some years of history, more than the casualties
of both world wars combined, so when this terror regime is
disintegrated or disappears, its impact on China is bound to be
unparalleled, and its impact to the world is also unprecedented. This
would indeed be a global, planetary class of “black swan”! Interestingly, such a global scale black swan event is actually
predicted and foretold by some, so the whole event is already
progressing toward completion as we speak and under the watchful eyes of
the world. So when this black swan, or rather, the red dragon, as the
Chinese Communist is often described, becomes a reality and the
disintegration of CCP comes into fruition, people on earth will have not
only hindsight on the event, but also a lot of foresight as well! “Disintegration of CCP” comply completely with the three
characteristics of Taleb’s definition of black swan. First, it is
unprecedented and exceptional. Even outside of China, some doubt it
could eventually happen. The Chinese Communist survived devastating
blows to its very existence many times in history, and it subsisted till
today, so there is no past incidence that could indicate the
probability of its disintegration in an absolutely convincing way.
Second, “Disintegration of CCP” could have huge, tremendous impact to
the people of China and the world, because of the population of the
country and its political and economic ties with the rest of the world.
Thirdly, even though the “Disintegration of CCP” is an exception, but
surely people could in hindsight give various explanations about its
occurrence, rendering it explainable and predictable. For example,
political scientists of future generations could attest that years
before the CCP collapsed, there was the Tuidang movement (quit CCP and
its affiliated organizations) that was similar to what happened to
Soviet Communist just before its collapse, and that the Chinese regime
is losing control and decaying in all aspects of the society:
politically, economically, socially, and environmentally. Taleb pointed out in the third edition of his book that the
occurrence of black swan has something do to with the observer. For
example, to a turkey and its butcher, the disastrous black swan event
for the turkey is not even a surprise to the butcher! So the solution to
this problem? Don’t be the turkey. Or, you can find the weakest and
most vulnerable part of yourself and change yourself from bad luck,
damaging black swan to a beautiful, benevolent white swan! Fascinatingly
in China today, as the Tuidang movement continues and as the party is
losing its control over the vast country and resentment from the masses
becomes ever snowballing, the same can be applied as well and Chinese
black swan or red dragon event is also observer specific. What is a
black swan to the ruling Communist regime may be a white swan to the
people! The main conclusion from Taleb’s approach was not to attempt to
predict black swan evets, but rather distinguish between the positive
and negative outcomes of black swan, so people could build a solid
foundation to deal with those potential, negative impacts of the event;
or, we could prepare in advance and take advantage of the positive
impacts of the event. Of the possible events that Taleb mentioned, one
is the inability of Western banking system to deal with potential
disaster. As well, Taleb also questions the presumptuous statistical
model, the normal distribution, in risk management. People with imagination or foresight have thought of many future
black swans, such as an alien attack on the Earth, GMO killing and
disfiguring human beings, and mini black holes created by hadron
colliders by mad scientists of Europe, etc. Of course, in the author’s
opinion, the most pertinent black swan to our life today, is the red
dragon in the biblical term being slain and smashed in China! So in
light of that and most importantly, we should all ask ourselves the
question, are we ready to embrace the upcoming black swan/red dragon
event of a communism-free era? Or, have we built a solid foundation to
deal with the upcoming changes in our world?
Dr. Frank Tian Xie is John M. Olin Palmetto Professor of Business
and Associate Professor of Marketing at the University of South
Carolina Aiken, in Aiken, SC, USA.
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