The statement “all swans are white” is falsifiable because black swans exist, and thus the formulation: “I see a white swan so all swans are white” is a logical fallacy. This “black swan problem”, as it is called in philosophy, is illustrative of falsification as a solution to the problem of induction. Nassim Nicholas Taleb pushes this philosophical idea into empirical reality, and equates the black swan with a large-impact, hard to predict, and rare event that exceeds normal expectations. The Black Swan Theory is his conceptualization, one which emphasizes the importance of undirected and unpredicted events as core components of everyday life. From our common experience, life seems to be almost wholly comprised of more predictable and mundane events, but he argues to the contrary, that the shape of our lives and our society is determined more consequentially by the few extraordinary rather than the many mundane. Accordingly, when we rule out the extraordinary and focus on the “normal” in our examination of what will happen and how we should act, we are ill-equipped to handle the rare but plausible outlier phenomenon.
In much the same way as Taleb, Michael Chertoff presented an argument for the validity of government management of risk during his talk at The London School of Economics and Political Science last Friday. As Secretary of the United States Department of Homeland Security under the Bush administration, Chertoff has dealt with most of the ramifications and related national security issues since the terror attacks of September 11, 2001. While insisting that free markets are positive and that the private sector is the most efficient manager of risk, he considers planning and accounting for black swan events a governmental imperative, and one that is often demonized for several reasons, most of which correspond to Taleb's study.Chertoff argued that when risks fall into one or more of three broad categories, they are better handled by the government than the private sector.
The three areas are as follows:
1.Situations with mis-aligned time horizons
2.Situations in which externalities are not taken into account
3.Situations which require transparency and confidence
The black swan situations are particularly relevant in the first category, since short term benefits are often preferred over long term costs. Specifically citing terrorism, Chertoff considers government the only body capable of sustaining long term costs with few immediate tangible benefits, and not as easily prey to the perils of forgetfulness which cause the downplaying of acute security risks. In the second area, externalities are often a missing part of the cost/benefit equation by the private sector and should be regulated by a government body, and the third area addresses the prohibitive cost for the private sector, compared with the relative ease of investigating black swan and other security risks by the government. He argues that the cost of investigation is too high for the private sector, and is not subject to the same regiment of laws which attempts to make governmental proceedings transparent.
In conclusion, and in answer to several questions by students and professors about The US Patriot Act, Chertoff asked repeatedly, “What do you find in the Patriot Act that is not valid under the US Constitution? Can you point me to something specific?”. Most cited racial profiling and surveillance procedures as the main transgressors. Chertoff's responses were adequately legalistic, emphasizing that wiretapping with a warrant is in fact legal, and that warfare has always involved “spying” on the enemy. Admittedly, a war waged against terrorists is more difficult to bound than those traditionally fought against uniformed soldiers on a field of battle. Terrorism in itself poses unique problems for legal procedure, the rules of war, and the need for unequivocal protection of individual and human rights.
While we as proponents of limited interference and regulation are rightfully wary of handing over power to our governments, most of us do accept the rule of law as the protector of our individual rights and property, and look to this governmental arm for security. As natural skeptics of concentrated power and believers in the spontaneity of the market, is it possible that we overlook and fail to take into account the black swan events that shape, often detrimentally, the very construct from which we are working? Are Chertoff's considerations a sober account of “a politics of fear”, or a reasoned, first-hand analysis of necessary governmental measures in a new era? We do not want to be manipulated by our governments, and yet we demand security in order to lead flourishing lives.
Extensive series on “The Politics of Fear” from n+1 Journal
New York Times Article by Taleb “The Black Swan: The Impact of the Highly Improbable”
Live webcast of the Michael Chertoff Lecture at the LSE