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Beyond Black Swans: The Dragon Kings of Climate Change

Weird stuff happens. Sometimes really weird stuff happens. And sometimes freaky weird stuff happens–the kind of events that just don’t fit the imaginable.

Nassim Nicholas Taleb’s 2007 book Black Swan: The Impact of the Highly Improbable, had a huge impact on our understanding of weird and really weird events. The essence of Taleb’s Black Swan theory:

What we call here a Black Swan (and capitalize it) is an event with the following three attributes.

First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme ‘impact’. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.

I stop and summarize the triplet: rarity, extreme ‘impact’, and retrospective (though not prospective) predictability. A small number of Black Swans explains almost everything in our world, from the success of ideas and religions, to the dynamics of historical events, to elements of our own personal lives.

The key to preparing for Black Swans rests in understanding the way events are statistically distributed over time. Unlike the normal distribution found in many phenomena, such as SAT scores, other phenomena follow what is known as a power law distribution, with many small events and few large events. Think forest fires. Black Swan provided a compelling account of the problem of over-relying on normal distributions to explain the world. For problems defined by “fat tail” power laws that have outlier events way out on the tail one would not find on a normal distribution, sooner or later an event at the end of that tail is going to hit, and it’s going to be big. So, planning for some policy problem based on a normal distribution can lead to under-preparation if in fact the problem follows a power law distribution.

Normal Power Law

Well, here’s the thing–it’s worse than that. A recent article by Didier Sornette of the Department of Physics and Earth Science at ETH Zurich, Dragon-Kings, Black Swans and the Prediction of Crises, discusses what he calls “life beyond power laws,” meaning “the existence of transient organization [of a system] into extreme events that are statistically and mechanistically different from the rest of their smaller siblings.” In short, he documents the existence of “genuine outliers,” events which don’t even follow the power law distribution. (In the power law graph shown above, sprinkle a few dots way out to the right of the chart and off the line.) The Black Swan event isn’t really an outlier, in other words, because it follows the power law and is simply an event way out on the tail. Genuine outliers violate the power law–they are even “wilder” than what would be predicted by the extrapolation of the power law distributions in their tails. A classic example is Paris–whereas all the populations of all other cities in France map well onto a power law, Paris is a genuine outlier. But Sornette documents that other such outliers exist in phenomena as varied as financial crashes, materials failure, turbulent velocities, epileptic seizures, and earthquakes. He calls such events Dragon Kings: dragon for “different kind of animal” and king to refer to the wealth of kings, which historically has been an outlier violating power law distributions of the wealth of their citizens. (Dragon Kings are also mythical Chinese shapeshifting deities ruling over water, as well as the name of some pretty good Chinese restaurants in cities around the U.S. according to Yelp.)

dragon king

So, what causes Dragon Kings? Sornette’s theory is complex, but boils down largely to instances when, for whatever reason, all of the feedback mechanisms in a system harmonize in one coupled, self-reinforcing direction. Massive outlier earthquakes, for example, are the result of “interacting (coupled) relaxation threshold oscillators” within the earth’s structure, and massive outlier financial crashes are the result of  “the unsustainable pace of stock market price growth based on self-reinforcing over-optimistic anticipation.”

What’s the lesson? The key to Dragoon Kings is that they are the result of the same system properties that give rise to the power law, but violate the power law because those properties have become arranged in such a way as to create severe instability in the system–a systemic risk of failure. When all feedback in the system has harmonized in the same self-reinforcing direction, a small, seemingly non-causal disruption to the system can lead to massive failure. As Sornette puts it: “The collapse is fundamentally due to the unstable position; the instantaneous cause of the collapse is secondary.” His assessment of the financial crash, for example, that, like other financial bubbles, over time “the expectation of future earnings rather than the present economic reality that motivate[d] the average investor.” What pops the bubble might seem like an inconsequential event in isolation, but it is enough to set the collapse in motion. “Essentially, anything would work once the system is ripe.”  And the financial system keeps getting ripe, and the bubbles larger, because humans are essentially the same greed-driven creatures they were back centuries ago when the Tulip Bubble shocked the world, but the global financial system allows for vastly larger resources to be swept into the bubble.

The greater concern for me, however, lies back in the physical world, with climate change. Sornette did not model the climate in his study, because we have never experienced and recorded the history of a genuine outlier “climate bubble.” But the Dragon King problem could loom. We don’t really know much about how the global climate’s feedback systems could rearrange as temperatures rise.  If they were to begin to harmonically align, some small tipping point–the next tenth of a degree rise or the next ppm reduction in ocean water salinity–could be the pin that pops the bubble. That Dragon King could make a financial crisis look like good times….

Law 2050 Looks at 2052

While on a post-free vacation the past week, I finished reading Jorgen Randers’ 2052: A Global Forecast for the Next Forty Years. (How could the author of a blog named Law 2050 resist reading a book titled 2052?) Randers is a Norwegian Business School professor specializing in climate strategy and scenario analysis, and was a coauthor of 1972’s The Limits to Growth, which, like 2052, was a report to the Club of Rome project. Unlike LTG, however, 2052 is not a scenario-building exercise (LTG developed 12 global scenarios through 2100). Rather, as Randers describes it, 2052 takes the LTG scenario Randers considers the most probable given the last 40 years of experience since LTG and plays it out in a global forecast for the next 40 years. The forecasting is based on computer modeling using extensive datasets organized around four major cause-and-effect themes: (1) population and consumption, (2) energy and CO2, (3) food and ecological footprint, and (4) a collection of economic, social, and demographic factors. After a macro-view of trends in these categories, all of which point to an “overshoot” in our use of resources, Randers then provides sub-global forecasts for the US, China, OECD (minus US), BRISE (BRIC minus China but plus some others), and rest of the world. Along the way 2052 sprinkles in dozens of micro forecasts by other experts on a variety of pertinent topics.

2052 is a marvelous book, well worth the long, dense read. There’s far more to it than I could possibly summarize here, but a few points seem pertinent to Law 2050‘s scope:

  • Randers predicts a world in which climate change is a major driver leading to a global infusion of energy efficiency technology and renewable energy infrastructure. Whereas LTG foresaw scenarios of overshoot dealt with through managed decline, Randers believes that the climate problem has moved us past overshoot into an era of “collapse induced by nature.” We will need energy efficiency and renewable energy just to tread water. Message for Law 2050: Energy law is going to grow only more important and broader in scope over the next 40 years.
  • The US and OECD will move into a period of stagnation as population levels off and we must pay for the self-indulgence of current and prior generations financed on unsustainable fiscal structures and deferred infrastructure investment. Hindering their ability to pull out of this dive will be the short-term focus of modern democratic politics and capitalism, which ultimately will prevent the US and many OECD nations form making necessary adjustments for the long-term. China, meanwhile, with its centralized governance system and economy will become the dominant global economic force, requiring most other nations to march to its trade policy tune. Message for Law 2050: Start thinking about what it means for the US economy to look much like it does now for a long time while China slowly but surely becomes the center of global trade and policy.
  • There is going to be social unrest across many scales. Many poor people in the world will be much better off than they are today, but many will not and the rich nations will experience declining growth and income. In the US, one lightening rod will be growing tension between the baby-boomers and their children and grandchildren, with Randers predicting that as the young become politically dominant they will simply say no to the prospect of maintaining the levels of support the baby-boomers unilaterally awarded themselves by leaving the bill on the table for younger generations to pick up. Message for Law 2050: There’s going to be some messy legal wrangling over how to pay for all that dessert the baby-boomers want to eat, and whether they’ll get all they ordered.
  • Randers acknowledges some “wild card” scenarios that could throw his forecast off track, including the continued pushing off of peak oil, another financial meltdown, nuclear war, and revolution in a major nation such as the US or China. Notably, however, radical technological change is not one of his wild cards, nor does it play much of a role in the forecast generally. Message for Law 2050: Forecasts are tricky–keep building multiple scenarios and don’t ever underestimate technology.

For all it covers, however, 2052 makes no mention of legal evolution in its forecast. Randers assumes (probably with good reason given the record so far) that the international community will not rally around climate with any meaningful international law response (listing that as one of wild cards instead), but does not consider how law contributes to or could redirect or respond to any of the other trends he predicts at regional and national scales. Nevertheless, and perhaps as a consequence, Law 2050 will make frequent references to 2052 in the future as a robust base for building and testing scenarios of our legal future.

Will the Endangered Species Act Make It to 2050?

This week a task force of federal, state, and tribal agencies released the National Fish, Wildlife, and Plants Climate Adaptation Strategy, a 5-10 year plan for initiating actions to assist species adapting to climate change. The Endangered Species Act (ESA) does not figure prominently in the plan. Why not?

A few years ago I published an article in the Boston University Law Review, Climate Change and the Endangered Species Act, in which I outlined  a trajectory of three key forces of species endangerment flowing from climate change:

  • Ecosystem disruption: some species will find it difficult to persist within their current ranges as climate change pulls apart the species assemblies and ecosystem properties to which they have adapted over eons. Many such species are stuck where they are–migration is not an option. Salmon and pikas are examples.
  • Adaptive species migrations: some species, however, will find migration an escape from climate disruption. Bravo for them! But when they move into habitat occupied by the “stuck” species, they will add yet another stressor.
  • Human adaptation: as humans respond to climate change with sea walls, relocation of coastal cities, water diversions, agricultural adaptations, pest and disease controls, and a host of other adaptation responses, we will put yet more pressure on species at the margin. Humans in need of adaptation may feel less warm and fuzzy about species standing in the way.

The main thrusts of the article were that (1) the ESA is not designed for greenhouse gas emission regulation, but that (2) the ESA, if innovatively deployed by the Fish & Wildlife Service and NOAA, could facilitate species’ climate adaptations. I am beginning to think I was too optimistic.The legal futurist in me doesn’t give the ESA’s species-specific, land use regulation approach more than 10-15 more years before it is overrun by climate change. No way it makes it to 2050. (more…)

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