June 9, 2010

AND THOSE ARE JUST THE WHITE SWANS:

The Next Sparks for the Economy Could Surprise Us: Never mind real estate or consumer spending: The expansion of the mobile Internet or an oil spike-led boost in green energy spending may juice economic growth (Chris Farrell, 6/08/10, Business Week)

[A]s the seeds of economic revival may be sown in some unexpected places. By now you've probably heard of the "Black Swan." The provocative catchphrase comes from a best-selling book by author and investor Nassim Nicholas Taleb. A black swan is essentially an unpredictable outlier event that has a dramatic impact on the economy and society. It gives lie to the elegant quantitative and mathematical models most experts use to predict the future course of the financial markets and economy. It's almost comforting to know that the surprising twists of history can fool even the most highly regarded financial and academic eminences.

Black swans are popularly considered negative events, largely because the fearsome global credit crunch—missed by most mainstream forecasters—made many investors appreciate the phenomenon.

Yet there's nothing intrinsically bad about black swans. The unexpected can be positive. Case in point: Netscape.

The U.S. economy emerged sluggishly out of the recession of the early 1990s. It was a jobless recovery, with little sizzle. But the Silicon Valley startup Netscape—which popularized the Web browser that is now an essential part of everyday life—went public in 1995. The demand for the company's $28-a-share offering was so strong that shares shot up to $75 and closed at $58. The dot-com boom and the Internet Age were born that day—or at least a lot of people suddenly dreamed of creative opportunities and wealth creation.


In practice, a black swan is really just an opportunity to say "I told you so." The genuine black swans of the next economic boom aren't things like energy innovation, which we all know is coming, but something no one is even aware of yet unless from fiction, like the Internet in 1950.

Posted by Orrin Judd at June 9, 2010 6:03 AM
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