Politicians, pundits and investors often invoke the metaphor of the “black swan” to
describe highly improbable, even unimaginable events. In particular, the global financial
crisis of 2007-09 is often described as a black-swan event, despite warnings about
derivatives and a subprime housing-market bubble. By definition, black swans cannot
be predicted, so nothing can be done to prepare for them. This kind of thinking makes
things worse by encouraging fatalism, rejecting accountability and giving the nod to
short-termism and wilful ignorance, which in turn generate volatility and tail risk. To
face the looming risks of 2021, we must replace black-swan fatalism with grey-rhino
constructive pragmatism.
As covid-19 spread, analysts quickly downgraded their early pandemic predictions of a
fast V-shaped recovery to a slower U-shaped recovery, and then to an even more
gradual “swoosh”. We now have a k-shaped recovery that has given the well-to-do a big
boost, creating financial-asset bubbles while essential workers and vulnerable sectors
struggle. In 2021 the global economy will suffer from a ripple effect of bankruptcies, job
losses and defaults, which stockmarkets cannot ignore for ever. At the same time,
increasingly violent storms, droughts, wildfires and freak weather will threaten insurers,
property, coastal cities and, by extension, financial stability.
Facing the daunting challenges ahead will require long-term thinking, a greater
emphasis on the real economy rather than stockmarket performance and, above all, a
commitment to hold ourselves and our leaders accountable. But it also presents new
opportunities. Removing fossil-fuel subsidies and promoting investment in clean
technologies will create jobs and reduce energy and health-care costs. Tackling
inequality will lift the bottom leg of the k-shaped recovery and spread the benefits of
the economic rebound.
We can see black swans only in the rear-view mirror. In 2021 we should focus on the
grey rhinos in front of us: obvious, foreseeable and giving us a choice to respond.
Michele Wucker is the author of “You Are What You Risk: The New Art and Science of
Navigating an Uncertain World” (Pegasus Books, April 2021) and “The Gray Rhino: How
to Act and Recognize the Obvious Dangers We Ignore” (St Martin’s Press, 2016)
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