"No amount of observations of white swans can allow the inference that all swans are white, but the observation of a single black swan is sufficient to refute that conclusion," wrote philosopher David Hume. In his New York Times best-seller "The Black Swan", author Nassim Taleb argues that extreme events - or as he calls them, "black swans" - occur much more frequently than imagined.
Additionally, the unexpectedness of such events seems to amplify their effects. Yet barely a quarter of the way into 2011, the world already has experienced multiple "black swan" events.
These events have profound impacts on the global economy. As globalization continues to develop and markets throughout the world become more and more intertwined, these effects only will increase. From the beginning of January to the end of February, the stock market closely resembled a bull market, increasing 5 percent during a two-month span and regaining its losses since the financial crisis of 2008. But who would have thought that a 26-year-old Tunisian named Mohamed Bouazizi, who was unable to feed his family and previously had been denied by the government a permit to sell vegetables, would publicly douse himself with gasoline and immolate himself? That fire triggered protests throughout Tunisia, spreading like wildfire and ultimately forcing President Ben Ali to flee the country. The wildfires did not stop there. Impossible to contain, they shook the foundations of governments across the Middle East, ousting President Mubarak in Egypt and bringing war against Libyan leader Gaddafi. As the battles continue in Libya, protests are now developing in Yemen and Syria. In Bahrain, a violent crackdown is being conducted by troops and police from Saudi Arabia and the United Arab Emirates. As soon as a fire is put out, another one rises.
The turmoil in the Middle East has not been easy for the rallying markets. Because a number of these nations have significant oil deposits, the price of crude oil has spiked because of supply fears. In turn, this price rise of the commodity has shaken investor confidence in an economic recovery amid fears that high oil prices will drag growth.
Then, while the world had its hands full with political uprisings, a monstrous earthquake struck Japan. The fifth strongest quake in recorded history left a massive wake of destruction. But the tsunamis which followed proved far deadlier, engulfing entire towns and leaving the majority of residents in the worst-hit areas missing. Factories of major Japanese companies in the area, including Toyota, Honda and Sony, had to be shut down as the tremors damaged the facilities. Oil refineries in the region also ceased production. In the aftermath, the Japanese stock market index fell 14 percent during the course of two days. Despite its earlier surge as a result of conflict in the Middle East, the price of crude oil, despite its earlier surge plummeted because of the drop in demand as damaged Japanese oil refineries were shut down. The disaster was more than a destructive tragedy; it froze the national economy and had disastrous global implications.
Fears of radiation emanating from the affected Japanese nuclear reactors only added another episode to the nightmare. Because 30 percent of Japan's energy is supplied by nuclear energy, precincts have declared planned blackouts to conserve electricity. The nuclear reactor problems also have contaminated water in Tokyo, where the radiation levels have exceeded the recommended level for babies. That in turn has led to an increase in the purchase of bottled water in the city, forcing stores to limit the amount which can be purchased per person.
Perhaps the biggest long-term effect might be seen through the change in how the world views nuclear energy. Chernobyl struck fear, but advocates have worked hard to assuage such worries. In the past, as the world looked beyond oil and toward alternative energy solutions, nuclear power often was touted as the most efficient of the clean energies. That notion now is likely to be heavily scrutinized. Also, because of the situation in Japan, German Chancellor Angela Merkel has ordered the closure of seven nuclear plants in Germany for inspection.
Few would have thought 2011 would turn the Middle East dynamic on its head. Even fewer expected this would be the year that Japan would be struck by a catastrophic earthquake. But that is the nature of black swan events. And this year, the world has found many.
Hideyuki's column runs biweekly on Wednesdays. He can be reached at h.liu@cavalierdaily.com.
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