Three Courses by Herbert Marcuse from the 1960s ©William Leiss 2017, All Rights Reserved

William Leiss took these notes in handwritten form in courses offered by Herbert Marcuse, in 1960-61 and 1963 at Brandeis University, and in 1966-67 at the University of California, San Diego.

Marcuse Hegel Seminar 1966 Final Marcuse Marxism 1963 Course Final Marcuse Political Theory 1960 Course Final [PDF]

Marcuse Marxism 1963 Course Final [PDF]

Marcuse Hegel Seminar 1966 Final [PDF]

President Trump’s First Hundred Days: An American Political Fantasy

President Trump’s First Hundred Days:
An American Political Fantasy (V4: New Material at End)

© William Leiss 2016

Shortly after New Year’s Day, anticipating the Inauguration Ceremony later that month, some hundreds of local armed groups started to ready themselves for the tasks ahead. They assumed a variety of names, such as 2nd Amendment Militia, Protection Posse, and Red State Raiders. Almost immediately after January 20th, the roundups of suspected illegal immigrants began. With an estimated eleven million undocumented aliens to choose from, there was much to be done.

In shop basements, empty warehouses, abandoned factories, and derelict houses across the towns and cities of many states, including those which had voted marginally blue during the November election, tens of thousands of individuals and families were gathered and kept under guard. Spokespersons for these operations displayed copious quantities of illegal drugs which, they maintained, had been seized from the detainees, although it at least one instance it was revealed that the drugs had been borrowed from a police evidence locker.

It was not long before the public outcry elsewhere forced state governors to plead with the new President for federal funds to assist them in managing this dangerously unstable situation. The President agreed that those who had been rounded up needed the protection of legal processes while they were in temporary custody. The requested funds were quickly pledged, and state officials started assisting the transfer of the captives to public facilities such as empty barracks at former military bases; where no such facilities were available, tent cities were erected and encircled with razor-wire fences.

The President joked that the camp conditions were not going to resemble those in his signature hotels, but he insisted that all detainees were being treated very humanely. However, he added, measures would soon be under way to transport the first wave of them from the camps to the Mexican border for deportation.

Quickly Mexican officials countered that its border would be sealed to prevent the entry of any persons held in U. S. custody who did not possess proper identity documents, including proof of Mexican citizenship. (A senior Mexican official commented, “A wall along the border works both ways.”) Since the overwhelming majority of those from the camps had no identity documents at all, it was impossible to predict how long this stalemate might persist.

Meanwhile, during this same period of run-up to the Inauguration and the weeks following, large contingents marched in cities under the Black Lives Matter banner. Blacks had voted for the defeated presidential candidate in overwhelming numbers, and many of them thought they knew what was coming. Increasingly the local armed militias called upon their members to line the parade routes, and the warning was understood. When individual blacks began to be shot in areas adjacent to the main events, protest organizers called upon their own supporters, which included many whites, to form armed contingents to protect the marchers. The calls for restraint from police forces were ignored. Thus Month One came to a close.

No sooner were the first camps up and running than drones appeared overhead, which turned out to be operated by opponents who were posting videos on the Internet, including some showing appalling sanitary conditions as well as inadequate food and medical care. When attempts were made to shoot them down, massed sorties of dozens of drones were launched to overwhelm the shooters.

Then at a large camp located near a state border, a heavily-armed contingent calling themselves Blue State Raiders launched their first operation, cutting the fences and freeing hundreds of captives, escorting them along back roads and forest tracks, previously scouted by drone reconnaissance, and across the state line. The escapees were housed in dozens of prepared sanctuaries, mostly in church basements. Many others were inspired by this initial success to plan and carry out similar ventures as increasing numbers of tickets for the new Underground Railroad were printed.

Soon mass arrests at the larger and larger Black Lives Matter marches overwhelmed local prison facilities. State officials reasoned that they had no choice but to arrange to open a second set of temporary camps, a move which was justified on the grounds that the arrestees needed protection while awaiting trial.

The back-and-forth strategies around both sets of camps escalated. Razor-wire enclosures were electrified as a further safety measure, the President explained, to prevent those in custody from being terrorized and kidnapped by the Blue State Raiders. But this and other measures failed to stop the numerous successful attacks, and the numbers of those escorted into the sanctuary states rose dramatically, even as the camp system itself was continuously refilled with newer detainees. Attempts by Red State Raiders to carry out missions against some sanctuary sites, in order to return former captives to the camps, were thwarted by quick police action. Thereafter some state governors called out their National Guard troops to protect the sanctuary sites. Thus ended Month Two.

As the nation reached the end of Month Three and the First Hundred Days, the Republican elected officials who controlled both the Senate and the House were happily proceeding with their own agendas, filling dozens of federal judicial appointments denied to the former president with suitable candidates; slashing tax rates for the rich and entitlement programs for the rest; repealing Obamacare, while promising to replace it with something better in the future; refusing to act on the President’s campaign pledge for a national child care program; and planning constitutional amendments to outlaw permanently same-sex marriage and abortion and to entrench control over voter eligibility firmly in the hands of state governments.

But even as the President watched with pleasure the opposing national party contort itself into an ineffective frenzy following his election, troubles were beginning to appear on the horizon. He knew full well that the illegal immigrant issue would not be enough to distract his supporters forever. The red state denizens who had packed his election rallies were already demanding that the new President fulfill his pledge to bring millions of well-paying jobs back from abroad by tearing up the international trade agreements which stood in the way. The projected federal budget deficit was soaring, and for this and obvious other reasons creditor nations were finally starting to doubt their longstanding faith in the safe haven represented by the U. S. dollar.

His party in Congress had made it clear that they were not prepared to deal with such minor issues. The President knew he could not avoid now turning to the task of bringing his own party into line. He was sure he could do this in short order, and if it turned out that he needed some help in the matter, he was quite certain that his good friend in Russia’s Presidential Palace would oblige.

A Special Note for Canadians:

Anyone in Canada who remembers the period 1965 – 1970 will also recall the long-running influx of Americans opposed to the Vietnam War: first, the draft resisters, numbering some 30,000, followed by the U.S. Army deserters, a much smaller number but counting individuals who took much greater personal risks to seek sanctuary here. The first group posed little problem for the Canadian government, since the resisters were not actively pursued by U. S. authorities, and most of them had financial support from their families. The second group, however, presented a unique situation: To the best of my knowledge, no NATO member country had ever before received a large contingent of military deserters from another NATO power and declined to repatriate them.

But the government of Pierre Eliot Trudeau did just that. They were allowed to stay and apply for permanent residence, and five years later they could qualify for citizenship here. Some returned after President Carter’s 1977 amnesty, but many did not. Canada as a country benefited from these two waves of grateful and productive new citizens.

It is eerily appropriate that we now have another Trudeau as Prime Minister, because, fellow Canadians, he and we should be getting ready for the next set of asylum-seekers at our southern border. Should the scenario sketched above come to pass, there may very well be a flood of illegal immigrants from South America, now living in the U. S., who will be fleeing deportation. There may also be a fair number of Afro-American citizens who fear harsh crackdowns on black protests against police and perhaps private violence. And there may even be numbers of white U. S. citizens who do not face persecution but who do not wish to live in the kind of country that Trump’s supporters intend to create.

We would be wise to consider these possibilities in advance and not just wait to see what might happen.

See also:

September 30, 2016
To be continued. Comments and Suggestions welcome.

http://worldif.economist.com/article/12166/world-v-donald

PDF Version: President Trump’s First Hundred Days V4

Disposal of Low- and Intermediate-Level Nuclear Waste (LILNW)

The Joint Review Panel (JRDisposal of Low- and Intermediate-Level Nuclear Waste (LILNW)

William Leiss (September 2014)

The Joint Review Panel (JRP), a three-member panel appointed by the Canadian Environmental Assessment Agency (CEAA) and the Canadian Nuclear Safety Commission (CNSC), has just concluded public hearings on a proposal to bury LILNW in a deep geological repository (DGR) at the Bruce Nuclear site near Kincardine, Ontario. The project website will be found at the following URL: http://www.ceaa-acee.gc.ca/050/details-eng.cfm?evaluation=17520.

Three colleagues and I completed a series of reports, commissioned by Ontario Power Generation (OPG), the project proponent, at the request of the JRP:

  1. Report of the Independent Expert Group on Qualitative Risk Comparisons among Four Alternative Means for Managing the Storage and Disposal of Low and Intermediate‐Level Radioactive Waste in Ontario (March 25, 2014). [Download]
  1. Report of the Independent Expert Group on Additional Figures and Interpretation in Support of Qualitative Risk Comparisons among Four Alternative Means for Managing the Storage and Disposal of Low and Intermediate‐Level Radioactive Waste in Ontario (May 20, 2014). [Download]
  1. Report of the Independent Expert Group on Risk Perceptions of the Four Alternative Means for Managing the Storage and Disposal of Low and Intermediate‐Level Radioactive Waste in Ontario (May 8, 2014). [Download]

A copy of the Qualitative Risk Comparisons Report is available, here:

 

Embracing Risk, Manipulating Chance: Will it all End Well?

A lecture at the Risk@Humanities Conference, 26-27 October 2012 By William Leiss Senior Invited Fellow (Fall 2012) Society for the Humanities, Cornell University wcl54@cornell.edu

Leiss Conference Talk

“Embracing Risk, Manipulating Chance:  Will it all End Well?”

Risk@Humanities Conference, 26-27 October 2012

By

William Leiss

Senior Invited Fellow (Fall 2012)

Society for the Humanities, Cornell University

wcl54@cornell.edu

 

From the Domination of Nature to Risk.

My doctoral thesis in philosophy at the University of California, San Diego, completed in 1969, was the last act of my decade-long apprenticeship with Herbert Marcuse.  It later became my first book, entitled The Domination of Nature (first published in 1972, and, I am pleased to say, still today in print).  At the end of my thesis oral, my supervisor announced that I was being awarded my degree for the single sentence that concluded the thesis, where I had reversed a famous Hegelian maxim, “the cunning of reason.”

[Hegel was fond of metaphors, and my favorite is, “The Owl of Minerva takes flight at dusk.”  What he meant was, we can only truly understand a historical epoch after it is over, when the life has gone out of it.]

Using a history-of-ideas approach, to which I had been introduced at the graduate program of that name at Brandeis University, I traced the development of the idea that humanity seeks to master or “conquer” nature through the progress of the modern sciences of nature and its technological applications.  Arising in the Renaissance, this idea was given its definitive formulation in the writings of Francis Bacon during the first quarter of the seventeenth century.

The eighteenth-century French Enlightenment thinkers took further Bacon’s inspired vision, as expressed best in Condorcet’s masterpiece, Sketch for a Historical Picture of the Progress of the Human Spirit (1795), a profound humanist tract written while its author was in hiding from the Terror.  Condorcet, himself both a great mathematician and a social progressive, and a colleague of Lavoisier, the “father of chemistry,” recognized the import of the natural sciences in promising an end to grinding poverty through economic progress; but he also championed the role of the sciences in dispelling the hold of ignorance and superstition over the human mind, through which regressive social practices and institutions were maintained.  Condorcet saw the internal connection between the applications of what we would today call “evidence-based reasoning” in both a mastery over the powers of external nature and a growing self-mastery over human social behaviors.

With the help of an extraordinarily perceptive one-liner written by Walter Benjamin, about the need to achieve mastery over the mastery of nature, I identified a potential internal contradiction in this grand historical adventure. For the species which seeks to master “external” nature – the physical environment, its resources and “powers” – has failed miserably so far to achieve self-mastery of its own nature.

The mastery over external nature takes the form of discovering an endless series of new powers and characteristics within nature that are turned through technologies into potent new capacities for action in the world.  These new technological powers are placed at the service of a species still riven by atavistic hatreds and ancient superstitions, where the rivalries among national and social groupings threaten to break out into unrestrained mayhem at any time.  If you will allow me to refer to just a single image to illustrate what I mean, think of the nation of Iran, the locus of one of the oldest continuous stories in human civilization, whose President rehearses apocalyptic religious fantasies in his speeches before the United Nations, while back in his homeland, in thousands of highly-sophisticated spinning centrifuges, hidden deep underground, uranium oxide is being enriched so that either nuclear energy plants, or nuclear bombs, or both, can be supplied.  Lest I be misunderstood here, I hasten to add that the Iranian mullahs have no monopoly on this juxtaposition of scientific modernism and atavistic motivation.

In his phrase the cunning of reason, Hegel alluded to the notion that the impulse of rationalism can work “behind the backs” of historical actors, bringing into being forms of progressive thought through a developmental process of which those actors would remain blissfully unaware.  In my reversal, looking at mastery of nature through the lens of “the cunning of unreason,” I imagined that the hidden drivers of history might work in the opposite direction as well, supplying irrationalistic impulses with the requisite means to pursue truly cataclysmic destructive goals using the products of rationalism’s glory, modern science and technology.  The point was not lost on the philosopher whose closest colleagues had produced the work entitled Dialectic of Enlightenment (see further Leiss 2011).

As for my own perspective, I regard the spirit of “enlightenment,” along with the modern natural sciences through which it is enabled, as the defining characteristic of modernity.  And I believe that the fate of both – Enlightenment and modernity – hangs in the balance today.  But I will not pursue this theme further here; if it interests you, you might take a look at a book of mine entitled The Priesthood of Science.

Instead I want to focus now on the story of risk, and try to demonstrate to you that it is the same story under a different name.  In a nutshell, risk management is the applied version of the mastery of nature.  It is the practical dimension of the great adventure I have referred to, the attempt to increase human welfare by, first, understanding how nature “works,” and then, using technologies to change the odds in our favor with respect to the contest of our species with natural forces.

Embracing Risk, Controlling Chance.

Risk – simply put, the chance of harm – is everywhere.  For every moment of existence, for every individual, family, community, nation, and for the world as a whole, the chance that some type of harm might strike unexpectedly is ever-present.  One-third of all first heart attacks are fatal and occur with no prior warning; global financial catastrophe appeared without warning, like a mighty flash of lightning, in mid-September 2008; and on average once every hundred-million years during our planet’s history, a massive asteroid, arriving seemingly out of nowhere, has wreaked havoc on our planet.

There is an almost infinite array of diverse types of harms.  This has always been true.  What is relatively new is describing the imminence of potential harm as a “risk.”  To call something a risk means that we understand the threat in a quite specific way, namely, as a source of potential harm that is (except in relatively few cases) which is potentially controllable by our conscious acts.  So the understanding of our environment as a source of multitudinous risks is not, as some believe, an expression of a pervasive, debilitating fear and unease about existence (Beck 1992).  The truth is exactly the opposite:  A risk-based understanding of the world implies, not a dread of uncontrollable forces but rather a confidence that a much higher proportion of our life-outcomes is amenable to rational control than was ever the case in the past.

For example, for women in pre-modern times pregnancy and childbirth were usually the leading causes of premature mortality (women then experienced in addition,  with all others of their species, the additional scourges of accidents, rape, famine, disease, war, violence, plunder and dozens of other calamities).  All of them were experienced as simple fate and happenstance, to be endured and outlasted if possible but not to be avoided.  Explanations for them were most commonly found in the deeds of supernatural entities – spirits, benevolent or otherwise – acting directly upon events or using human agents as their surrogates.  [How very far we have advanced since then!  If only we could figure out whether God really intends rape to be a good opportunity for creating human life on earth.]

The systematic idea that harms have causes rooted in the characteristics of natural and social systems, and that no supernatural entities are complicit in them, is the product of the Enlightenment of the modern West.  From its earliest beginnings this “simple” idea was both a theory (seeking confirmation through experimental evidence) and a program of action (seeking changes to existing practices and institutions).  Harms with natural causes, such as diseases, would be amenable to reduction through the discoveries of the new sciences of nature, first chemistry and later physics and biology.  Harms with social causes, such as criminality or the gross injustices of the legal and penal systems, would be amenable to reduction through reforms to political institutions and improved insight into the determinants of human behaviors.

The champions of the eighteenth-century French Enlightenment, building on the passions of their revered predecessor, the English Lord Chancellor Francis Bacon, sought to replace fate with a chain of causation that was open to rational analysis and the gathering of evidence.  Changing the prior conditions would alter the ultimate outcomes in predictable ways for the “betterment of the human condition.”

So the first radical idea in the new natural philosophy was to see life-outcomes as resulting neither from unalterable fate nor the intervention of supernatural agents, but rather from conditions that could be understood and potentially manipulated to our benefit.  The second radical insight was to see that, collectively, such outcomes were distributed across a range of specific end-points (such as average age of mortality in a population) which could be represented as probabilities.

The second was at least as important as the first, because it meant that one could take a strategic approach to the matter even if the pattern of outcomes itself could not be influenced.  The best example is insurance, and indeed commercial marine insurance was one of the first applications of the risk-based approach (see generally Bernstein 1996).  Following a risk-sharing strategy, and accumulating enough reliable evidence about the chance of a ship’s cargo being lost at sea from a variety of causes, such as bad weather or piracy, meant being able to set appropriate levels of premiums for insured losses.  Assembling accurate national mortality tables meant that Scottish churches could determine the premiums needed to establish the necessary financial reserves for providing family support to the widows of ministers – which is why there exists, still today, a life-insurance company in the UK with the name “Scottish Widows.”  And a momentous breakthrough known as “Bayes’ Rule” (after an eighteenth-century English clergyman and mathematician), showed how to deal with the uncertainties that bedevil risk:  in the face of inadequate knowledge, take a guess about what is the case, and then ask yourself what evidence you could look for that would increase the likelihood of your being right about it, and keep repeating the exercise to increase your confidence level in the result.

These straightforward examples from the early modern period illustrate the simple truth that the risk-based approach represents not an exacerbation of existential fear but rather the rational hope that either the nature of the outcomes themselves, or just their consequences (that is, losses of various kinds), or both, can be controlled to some extent.  In almost all cases the objective of risk management is not to abolish the sources of harms but to limit the adverse consequences of our exposure to them, especially to help us to avoid catastrophic losses, that is, losses so great that it is difficult or impossible for us to recover from the encounter and rebuild our fortunes.

Being able to represent a type of harm accurately as a risk, therefore, means knowing how to manage our encounter with it in such a way that losses are minimized and gains are maximized.  According to a well-known aphorism, we can only manage something if we can measure it, because we only know if our management is successful by examining the results we get for our expenditure of time and resources.  The metamorphosis of harm into risk – for risk is measurable harm – is the key step in our ability to take control of important aspects of our continuous encounter with our environment, including our genetic inheritance, rather than to submit meekly to fate and chance.

Paradoxically, the steady growth of scientific knowledge about natural and social systems magnifies the number of risks we face, because it turns mysterious harms into known risks.  This is a simple function of having an increasingly sophisticated and precise picture of underlying cause-and-effect relations and also of developing advanced technological tools for risk control, which inevitably introduce new risks of their own.  The overriding idea is that the substitution of risks for harms will yield very substantial net benefits – in terms of longevity, better mental and physical health throughout life (with all of the associated benefits that good health brings), less pain and suffering, and the capacity to recover well from serious adverse events.

Thus the modern world is indeed riskier than was the past:  But the right conclusion to draw from this truth is that this greater riskiness is a good thing, because it follows that the scope of our potential control options over life-outcomes has been enlarged.

I emphasize the word “potential” because both harms and risks are tricky in nature and the cause-effect relations underlying them can be subtle and hard to detect.  The long latency of some diseases, such as smoking-related lung cancer, and the even longer timelines of environmental risks, especially climate change, allows us to deny the potential for substantial harm, if we are so inclined to do.  Moreover, we are always exposed simultaneously to many different types of potentially harmful agents, and sorting out the dominant causative factors is onerous.  As a result, risk management is almost always a difficult business and requires the application of a methodical and highly-disciplined analytical paradigm.

Essentials of the Risk Management Paradigm.

Risk management, simply stated, is the attempt to anticipate and prevent or mitigate harms that may be avoidable.  Its essential steps are foresight (using risk estimation), precaution (spending some money in advance, such as purchasing insurance), and prudence (seeking to avoid, not all losses, but catastrophic losses, that is, being wiped out, from which future recovery is difficult and sometimes impossible).  Since risk management is also, by definition, decision-making under uncertainty, when we take precautionary steps we cannot know whether we are wasting our money – but at least we can be reasonably certain that we have protected ourselves from catastrophic loss.

Thus, for example, we have an insurance scheme to protect people from losing most or all of their money in case their own bank fails, something that did not exist in the early 1930s, when many people lost all their savings, reducing consumption and helping to sink the economy into the Great Depression.  It costs society remarkably little to maintain such a scheme.

All risk management costs money, either because some opportunities for individual gain must be renounced or because corrective risk control measures (such as regulations) demand new expenditures, or both.  Thus risk management initiatives usually encounter determined resistance from entrenched economic interests, and attacks on the scientific and statistical calculations supporting a newly-measured risk are commonplace.  From resistance to the earliest regulatory measures in food safety and workplace hazards, over a century ago, to the fifty-year battle waged by the tobacco industry against the epidemiology of smoking-related diseases, to today’s fierce opposition to effective regulatory control over systemic financial risk by the banking industry, to the sowing of doubt about climate science, any major initiative in risk control can expect opposition from powerful interest groups.

Nevertheless the general reach of risk management in modern society expands steadily.  Both professional risk managers and ordinary citizens have ready access to information and analytical tools that, when properly deployed, allow them to modulate their exposure to harms and to incur reasonable costs to achieve targeted levels of risk control.  There are literally hundreds of cases where reliable information exists, easily-accessible, that you can use to improve your chances for yourself and your children – because something like 75% of our lifetime health outcomes are dependent, at least in part, on the “lifestyle” choices we make in terms of such risk factors as diet, exercise, alcohol and drug intake, and so on.

Yet here we come to the first in a series of paradoxes in risk management; this one I call the paradox of too much information.  Let me give you a couple of examples, the first from the area of blood safety.  Relevant information includes the risk estimate in Canada, at present, for the chance that one person will be infected with HIV, in any year, from a unit of donated blood.  The answer:  1 in 8 million donations (ten years of donations).  The bottom line is, since almost certainly blood has never been safer than it is now, don’t worry about it.  But if you insist on more information, I could tell you that, at the 95% confidence level, the uncertainty range varies from 1 in 3 million to 1 in 20 million (Leiss et al. 2008, Appendix:  What is Risk Estimation?).  You ask:  What does that mean?  The answer is, technically, that we are a lot more confident that the risk is somewhere between those two outer bounds, than we are that it is exactly 1 in 8 million.  Then you might conclude, “Well, that says to me that you don’t really know what the risk is, right?  So, I’ll make up my own mind.”

Or take the case of the HPV [human pappilomavirus] vaccine, which can prevent cervical cancer for women.  You can take your advice from the CDC in Atlanta, which will tell you that the vaccine itself is “safe.”  Does this mean that there are no side effects?  No, but the bottom line is, “don’t worry about it.”  Or you can go on the Internet, and find a huge stash of anecdotal evidence, including many pictures and videos, about individual (alleged) cases of serious adverse reactions, including paralysis and death.  What would you like to believe?  Have you heard of “confirmation bias,” an area of research where it has been shown that many people structure their information search in order to find support for their prior belief?  [See the PBS Frontline program, “The Vaccine War,” broadcast April 27, 2010.]

Here’s another paradox.   Our increasing sophistication about risk control induces in some players a propensity to deliberately seek higher levels of risk.  Some people who know that ABS systems in their cars increase driving safety tend to drive faster.  Practitioners of “extreme sports” react to safety enhancements in equipment and techniques by pursuing exotic alternatives, such as skiing out of bounds at resorts where the ski runs have been evaluated by professionals.  Undersea drilling for hydrocarbons extends into far deeper waters and more fragile environments, such as the Arctic, where existing safety protocols may not necessarily remain robust.  And bankers deploy arcane mathematical models in order to make large bets on novel financial instruments that test the limits of their own capacity to avoid so-called “tail risk” where catastrophic losses lurk.

Risk-taking feeds on itself:  The very same reasoning that once turned unknown levels of harm into calculable levels of risk threatens to flip back again into its prior state.  In the Fall of 2008 all of the world’s major financial institutions had been operating with formal models known as “value at risk,” designed to put a number on the maximum possible loss resulting from each day’s operations; when the abyss opened and their risk calculations were proved worthless, none of them knew where the contagion of incalculable loss and bankrupt firms might end, or which of them would survive it:  The risks they thought they understood had reverted to unknowable harm (Leiss 2010).

The greatest and most fateful paradox, which is actually generated by in part by those already mentioned, is that the scientific basis of risk-taking and risk management may carry within it the seeds of its own spectacular, ultimate failure.  For each successful targeted intervention in manipulating our relation to our environment on a minor scale makes us ever more dependent on being able to perpetuate the process of manipulation indefinitely into the future, on an ever larger scale.  Each round of short-term, successful intervention induces the need for more extensive ones later on.  Think of antibiotics and the development of microbial resistance to them.  Or the case which I shall discuss more thoroughly in a moment, our inadvertent manipulation of the earth’s climate system, from the burning of fossil fuels, which may require us to experiment with massive geo-engineering experiments in the future.  We cannot jump off this treadmill.

Moreover, driven by the economies of scale and comparative advantage, the globalization of production of economic goods integrates the fates of nations and regions every more tightly; now all want the additional industrial development pioneered by the West – and why shouldn’t they?  But this fact introduces the added complexity of requiring coordinated action through international agreements, something that in itself has been shown to have its own treacherous difficulties.

All of this leads to enormously increased pressures and impacts on the globe’s key biophysical resources, including potable water, energy, agricultural soil, unpolluted air, ocean productivity, and others (again, I will come back to this issue in a moment). These impacts must be managed in order to ensure that the productivity of these resources can be sustained over long time-frames.  One of the unintended consequences is the globalization of the associated risks, which results directly from our successes in risk management on a smaller scale.  With respect to diverse threats from zoonotic diseases to climate change to systemic financial risk, we are forced to acknowledge that only a coordinated international effort will be adequate to the task.  But it is not at all certain that our social institutions will ever be sufficiently robust to mount such an effort in any or all of these domains.

Managing Nature.

The general point I want to make is this:  The long quest to exploit nature’s resources intensively for human benefit threatens to reach its own internal limit and may collapse under its own weight.  (I will explain what I mean by “internal limit” in a moment.)  The reason is that this exploitation has unintended consequences that themselves must be managed, and that this management can only be done collectively, by all nations acting together; however, it is not at all certain that the will to do so can be mobilized.  If it cannot, the consequences of this failure may turn out to be catastrophic for humanity as a whole.

There is an interesting attempt being made by environmental scientists to define a set of so-called “planetary boundaries” for human transformation and exploitation of the earth’s natural systems.  In a nutshell, these boundaries determine the amount of the earth’s biological productivity that can be sustainably harvested by human societies.  Here the word “sustainably” has a precise meaning, namely, ensuring that natural systems are capable of regenerating themselves as we use them, so that future demands on them can be met indefinitely into the future.  As presented in the journal Nature in 2009, by Johan Rockström and colleagues, these boundaries include freshwater use, ozone depletion, land use changes, the nitrogen-phosphorus cycle, ocean acidification, and climate change.  The authors try to show that human demands on these systems either already exceed “safe” levels of exploitation, or are close to doing so; meanwhile, of course, human numbers and levels of exploitative demands are increasing steadily.

A more recent article, in the journal Science in 2012, by Steven Running, combines these determinants of planetary boundaries into a single indicator, namely, “terrestrial net primary plant production” (abbreviated as the “NPP boundary”).  He notes that “plant matter [from solar energy, water, and atmospheric CO2] … sustains the global food web and becomes the source of food, fiber, and fuel for humanity.”  He concludes:  “Consideration of current land use patterns and the projected rise in the human population suggest that human consumption may reach the global NPP boundary within the next few decades.”  (This is in a way an updated version of the famous Limits to Growth argument from 1972; contrary to what many believe, as shown in a recent review [Turner 2008], events in the intervening forty years have validated much of the business-as-usual scenario presented there.)

We have no “political” process in place, at the international level, that could even pretend to manage the future course of the human impacts on the earth’s biological productivity.  So let’s just hope that these scientists are deluded.

Consider at greater length the issue of global climate change.  This is part of the central story of the last few centuries, the story of the industrial revolution, because fossil-based energy sources are the principal driver and enabler of industrialism.  Fossil energy use has been growing since the middle of the eighteenth century; by the mid-point of the present century, three hundred years later, in 2050, it will still represent about three-quarters of global energy demand.  The story about the consequences of our energy use involves, first, the scientific theory of the natural Greenhouse Effect (2012), developed in the 19th century from Fourier (1824) to Arrhenius (1896), telling us why the earth is a full 33°C warmer than it would otherwise be in the absence of this effect.

The later theory of anthropogenic (human-caused) warming, known as the theory of radiative forcing, tells us that the massive amounts of greenhouse gases we have added to the atmosphere during the last three centuries, largely from the burning of fossil fuels, almost certainly will produce a range of adverse effects – changes to long-term weather patterns – of very large magnitude.  This insight began with a famous paper by Roger Revelle and Hans Suess in 1957 (Revelle 2012).  [I did my doctoral work at Revelle College at UCSD.]  Beginning in 1965, a long series of expert panel reports published by the U. S. National Academy of Sciences, followed by a series of massive reports under the auspices of the Intergovernmental Panel on Climate Change (IPCC), based on thousands of papers published in peer-reviewed scientific journals, confirmed this original insight.  Almost certainly this is the largest collaborative undertaking in the history of modern science.  Unfortunately, it showed that our manipulation of the earth’s climate was inadvertent, and that we fully comprehended the nature of our actions very late in the game, making the deployment of any counter-measures both difficult and, ultimately, expensive.

This is actually a very hard problem, both of precise understanding and of action based on it.  The earth’s climate system moves massive amounts of energy around the globe and is the result of an extremely complex set of factors, including the nature of the sun’s electromagnetic radiation, variations in the amount of solar energy, the tilt of the earth’s axis, its rotation around its axis as well as its orbit around the sun, the capacity of its oceans to act as a carbon sink, the function of clouds, the heat-trapping potential of various gases, and others.  This means that over long periods of time the earth’s climate varies substantially.  Thus the scientific account of climate is necessarily as complex as is its subject, and simulations – the so-called climate models – require the most powerful computers to run them.  In fact, it is so complex that most of us have to take it on trust, as we do with all the rest of contemporary scientific output.

This is a very hard problem for other reasons as well, the most important of which is the time-frame for climate change impacts and the lag effect of radiative forcing.  Lag effect means that we do not observe the ultimate results of human inputs to the climate system for a very long time, indeed, over many generations.  And to put the point bluntly, we are bad enough at making sensible political decisions under conditions where the evidence stares us in the fact, so to speak; when it comes to projections about what may happen far into the future, we are, frankly, quite hopeless.

The massive IPCC summary of the scientific analysis of climate change at present is encapsulated in the conclusion that anthropogenic greenhouse gases are “responsible for most of the observed temperature increase since the middle of the twentieth century.”  This conclusion is reported as “very likely” to be the case (>90% probability, with high confidence).  Since we are still accelerating the process of radiative forcing, because our greenhouse-gas emissions are steadily rising, substantial future rises in temperature are inevitable.  And indeed there is some plausible probability that in the relatively near future some massive positive-feedback loops may kick in, for example additional warming induced by the release of methane stocks now locked into Arctic permafrost, leading to the possibility of a “runaway” greenhouse effect.

At some point, likely before the year 2100, these temperature increases are likely to be very disruptive, in terms of our established life-styles, producing massive dislocations in human settlements.  In a recent book (Leiss 2010) I have called this a “black-hole risk,” meaning a risk with a potential downside so enormous in scope that we cannot even estimate how bad it might be.

Climate change is a global problem.  It can only be dealt with in the context of an overall international agreement with specific and binding commitments, enforced by penalties, for the failure of any nation to meet GHG emissions reductions targets.  This year, 2012, marks the end of a twenty-year period of failure, starting with the 1992 “Rio Conference” and continuing through the ratification and then abandonment of the “Kyoto Protocol,” to achieve any such agreement.  Will we succeed if we try again?  Do we even want to try?  At present the answer is a resounding “No.”  [It’s not that we haven’t ever succeeded in doing this, as the international convention on ozone-hole depletion shows (see Leiss 2005).  But in that case we had a nice picture of the hole in space, and the threat of elevated skin-cancer risk, to settle the public debate on the need for risk control.]

Climate risk mitigation requires controlling human-caused GHG emissions.  Like all risk mitigation this will cost money, for example, by means of a carbon tax on every person’s fossil-energy use, perhaps a small tax at first, but probably quite a hefty one later on.  Who here today wants to start paying?  Remember, you have to start paying now in order to avoid the really harmful consequences that “very likely” may befall your great-great-great grandchildren by the year 2100.  Note that there is only a certain probability of these harms happening, albeit a high one (>90%).  Admittedly, it’s a lot cheaper just to hope that it won’t happen after all, letting your distant descendants take their chances with the outcome of the bet you make today.  Or to simply adopt the belief that the climate science predicting this outcome is a “hoax” – as many U. S. citizens do, according to opinion polls, apparently trusting the many web-based propaganda organs that promote this canard.  [See the excellent PBS Frontline program, “Climate of Doubt,” broadcast earlier this week.]

The United States is home to the largest, most lavishly-funded scientific enterprise the world has even seen.  The mere suggestion that one of the crowning glories of that enterprise, climate science, could be a hoax – that is, a deliberate deception – is, or at least ought to be regarded as, simply ludicrous.  But the fact is that the opposite idea, namely, that the science of climate change provides a plausible basis for starting to pay a carbon tax now, cannot even be discussed in this country (the situation is not much better anymore in Canada, which once ratified the Kyoto Protocol).  Just remember:  Every belief we hold about the future is a bet.  And in another 20 or 30 years it won’t even matter which way we have bet on climate change risk:  At current and projected levels of GHG emissions growth, by around 2050 we will have reached the point where any contrary action would be pointless (see McKibben 2012):  Those alive at that point can all just join in singing Que sera, sera.

Everything we ordinarily believe in trusting the results of science in our lives, such as following medical routines and operating the countless gadgets we depend on, tells us that our bet against the believability of climate science is a very bad wager.  Some people think that the only good bet is to trust our technologies to deal with global warming later on, if we are eventually forced to conclude that we need to counteract our radiative forcing, by geo-engineering:  putting thousands of orbiting mirrors up in the stratosphere to reflect sunlight back into space, or producing more cloud cover by spraying huge quantities of sulfur dioxide into the lower atmosphere (thus mimicking the effects of volcanos), or dumping iron into the oceans to stimulate algae growth for carbon sequestration.  If you think that, having failed to manage other types of human impacts on the planet, we are likely to pull off this one without a hitch, you are to be regarded as a true Panglossian.

At the gaming tables, when your bets have turned against you and you respond by raising the ante, it’s called “doubling down.”  Here the size of the bet we are making, by pretending that everything is under control, with respect to our manipulation of the planetary ecosystems, is approaching the “all in” scenario.  It is in my view not an exaggeration to say that we are wagering on the future of industrial civilization itself.  For myself, I doubt whether this will end well.  [Some of you in this room will be alive in 2050, when the future course of this risk scenario will be a lot clearer than it is now.  Please remember to send the rest of us who are no longer with you an email message; for myself, I hope to be partying with the Devil, so you can reach me in Hell.]

Humans are a clever and adaptive species and would surely survive such a catastrophe.  But the current revival of interest in the thinker who is perhaps the greatest political theorist of the modern age, Thomas Hobbes, should remind us that life once was “solitary, poor, nasty, brutish and short,” and might be so again.

Conclusion:  The Inner Contradiction within Risk Management.

The deep truth about risk and risk management has to do with our propensity to push our wholly inadequate managerial capacities to the limit, all the while protesting that no such limit exists.  Our reaction to encountering unforeseen obstacles is to “double down” on the first bet, raising the stakes dramatically:  If climate change risk arises from the technologies that allow us to combust fossil fuels on a prodigious scale, we are inclined not to hedge the first bet but rather to double it by envisioning using entirely new technologies on an equivalent scale to counteract the initial effect.  To take another specific example, there is the notorious case of Bruno Iksil of JPMorgan Chase, known as the “London Whale” for the sheer size of his bets, who apparently, earlier this year, “doubled down” repeatedly as the markets turned against his bet, until his bank was forced to exit his positions in the derivatives markets at a cost of $7 billion and counting.  This case shows that bankers reacted to the damage done by exotic financial instruments in the 2008 financial crisis by deploying risk control strategies so complex that, it seems, not even the bank’s senior management personnel and its CEO understood what their traders were doing or how much the potential hit on the downside could add up to.

I remain, I confess, an incorrigible Hegelian.  In this failure to understand how the most exquisitely-tuned rationalism can magnify, rather than mitigate, our vulnerability to the downside risk, can delude us into imagining that we have become the unchallengeable masters of our planet’s ecosystems, and can tempt us into wagering all of the accumulated gains of the last few centuries on a few final throws of the dice, I see the cunning of unreason at work.

Do you recall Goethe’s marvelous poem from 1797, “The Sorcerer’s Apprentice” (2012), where the hapless assistant overestimates his ability to deploy safely his master’s magic incantations?  The risk managers I just mentioned probably think that this is an entertainment for children because Walt Disney made an animated cartoon out of it.  How little they know.

 

William Leiss
Society for the Humanities
211 A. D. White House, 27 East Avenue
Cornell University
Ithaca, NY 14853-1101
Tel. 607-255-9279
Fax 607-255-1422
www.leiss.ca
www.herasaga.com
www.blackholesofrisk.ca

Permanent email address:  wleiss@uottawa.ca

 

References

Beck, Ulrich (1992).  Risk Society:  Toward a new modernity.  London:  Sage [see Leiss, book review (1993):  http://www.ualberta.ca/~cjscopy/articles/leiss.html].

Bernstein, Peter L. (1996).  Against the Gods:  The remarkable story of risk.  New York:  Wiley.

Iksil, Bruno (2012):  http://en.wikipedia.org/wiki/Bruno_Iksil

Leiss, William (1972).  The Domination of Nature.  Montreal:  McGill-Queen’s University Press, 1994.

Leiss, William (2005).  “Ozone and Climate”:   http://leiss.ca/wp-content/uploads/2009/12/ozone_and_climate.pdf

Leiss, William (2008).  The Priesthood of Science.   University of Ottawa Press.

Leiss, William (2010).  The Doom Loop in the Financial Sector, and Other Black Holes of Risk.   University of Ottawa Press.

Leiss, William (2011).  “Modern Science, Enlightenment, and the Domination of Nature:  No Exit?”  In:  Critical Ecologies, ed. Andrew Biro (University of Toronto Press), pp. 23-42.

Leiss, William et al. (2008):  W. Leiss, M. Tyshenko, and D. Krewski, “Men having sex with men donor deferral risk assessment,”  Transfusion Medicine Reviews, Vol. 22, no. 1, 35-57.

McKibben, Bill (2012).   “Three simple numbers that add up to global catastrophe.”  RollingStone, 19 July:  http://www.rollingstone.com/politics/news/global-warmings-terrifying-new-math-20120719

Greenhouse Effect (2012):  http://en.wikipedia.org/wiki/Greenhouse_effect

PBS Frontline, “Climate of Doubt,” 23 October 2012:  http://www.pbs.org/wgbh/pages/frontline/climate-of-doubt/

PBS Frontline, “The Vaccine War,” 27 April 2010:  http://www.pbs.org/wgbh/pages/frontline/vaccines/view/

Revelle 2012:  http://en.wikipedia.org/wiki/Roger_Revelle.

Rockström, Johan (2009).  “A safe operating space for humanity.”  Nature 461 (24 September), 472-5.

Running, Steven W (2012).  “A measurable planetary boundary for the biosphere.”  Science 337, 1458-9.

“The Sorcerer’s Apprentice” (2012):  http://en.wikipedia.org/wiki/The_Sorcerer’s_Apprentice

Turner, Graham M (2008).  “A comparison of The Limits to Growth with 30 years of reality.”  Global Environmental Change 18, 397-411.

Once More, Understanding Systemic Financial Risk

William Leiss:  RiskBlog 1 March 2012

Once More, discount Understanding Systemic Financial Risk

Satyajit Das and Systemic Risk [PDF]

 

Andrew Palmer’s recent essay on financial innovation in The Economist, “Playing with fire” [25.02.12: http://www.economist.com/node/21547999] has received a lot of attention.  Read it, but also read the trenchant critique by Satyajit Das, one of the most perceptive observers on the subject.  (Read his frequent blogs; his books, listed below, tend to be rather long-winded and egoistic, a compilation of scattered thoughts.)

The global financial crisis which began in 2008 is a slow-moving massive train wreck that may take an entire decade to bring under control.  The catastrophic events of 2008 – still reverberating today, more than three years later, in the European sovereign debt crisis – have caused losses of many trillions of dollars.  The scope of the losses is almost uncountable [http://bettermarkets.com/blogs/financial-reform-will-keep-wall-streets-hands-out-taxpayer-pockets, from “Better Markets,” a website I recommend].  This is why it is the best illustration of what I have called a “black hole of risk” in my book, The Doom Loop in the Financial Sector [www.blackholesofrisk.ca/].

Regulatory reform of the financial sector is designed to help us avoid a repeat of these events.  But the struggle for regulatory reform is far from won, because of intensive lobbying by big banks and financial sector interests.  The current battle is over the so-called “Volcker rule,” designed to reduce risks from investment banks trading on their own accounts:  to understand this one, and others like it, follow “Baseline Scenario,” written by Simon Johnson and James Kwak [http://baselinescenario.com/].  If the bankers win this one, and others, they’ll do it again to the rest of us:  Take obscene amounts of money for themselves during the good times, and saddle the taxpayers with the costs of bailouts when they bring on the bad times again.

Part of the reason for this extended train wreck is that at least one solution adopted by governments to respond to it is itself the cause of future problems.  I refer to the central banks’ policy of mandating near-zero interests rates over long terms.  It is already clear that this policy solution is devastating the financial health of insurance companies and pension plans, failing to rewards savers, and encouraging imprudent borrowing.  Even the Bank of Canada, which joins other central banks in this flawed policy, acknowledges its downside risks, calling attention in its December 2011 review report to “a prolonged period of low interest rates, which may encourage imprudent risk-taking and/or erode the long-term soundness of some financial institutions” (preface, page 1), available at: [http://www.bankofcanada.ca/wp-content/uploads/2011/12/fsr_1211.pdf]  Of course, it uses the typical wishy-washy bureaucratic language of “may” encourage or erode, which is irresponsible:  The serious damage being done to the insurance industry and pension funds from the extremely low interest-rate policy of central banks has already been widely reported, and it poses a serious risk to the security of the future retirement plans of millions of Canadians.

In his recent blog, below, Satyajit Das explains that Palmer’s essay overlooks the most crucial truths about the nature of risk in recent financial innovations, among them:  (1) a lack of transparency in the transactions; (2) a slow-growing “concentration” of risks that remains in the shadows until it’s too late to stop the collapse.  This is what we now call “systemic risk” in the financial sector.  A broad public understanding of systemic risk – which takes a bit of effort for citizens, I admit – is essential to build public support against the bankers for effective regulatory reform.  The security of your retirement assets depends on your making this effort.

Satyajit Das: Pravda The Economist’s Take on Financial Innovation

 

Gutman and Marcuse and Heidegger

In a conversation with Laureano Ralon and Roman Onufrijchuk, I recall the great gift bestowed on me by the opportunity to study with great teachers, in particular the historian Herbert Gutman and the philosopher Herbert Marcuse.  Questions about  the eight years of apprenticeship I spent with Marcuse during the 1960s, both at Brandeis and UC San Diego, naturally lead to my own thoughts about his period of study with Martin Heidegger.  Basing my discussion on the brilliant and pathbreaking book by the contemporary French philosopher Emmanuel Faye, Heidegger:  The Introduction of Nazism into Philosophy [original in French, 2005; English translation, Yale University Press, 2009], I argue that Heidegger’s thought will always be morally compromised by his enthusiastic and unapologetic support of Hitler’s regime and by his own effort to synthesize his philosophical thought with Nazi ideology.  A passage in Heidegger’s postwar work, cited by Faye, describes the fate of extermination-camp victims as, in effect, a “death unworthy of death,” bringing to mind the notorious phrase, “life unworthy of life,” which was used during the Nazi period to justify the murder of groups singled out for extermination.  I undertake these reflections in the context of my own continuing struggle, as a person of German descent, with the legacy of barbarism and savagery bestowed on us by the Nazi regime, a legacy that must never be forgotten and that can never be forgiven.

http://www.ctheory.net/articles.aspx?id=690

European Debt Crisis in three acts

The Online English Edition of Der Spiegel has a brilliant analysis of the European debt crisis that is not to be missed.

Read “The Ticking Euro Bomb” (October 5-7, no rx 2011):

Act I:

Part 1, advice Section 1:  “How a good idea became a tragedy”:  http://www.spiegel.de/international/europe/0,1518,790138,00.html

Part 1, Section 2:  “The Greeks jump at the opportunity”: http://www.spiegel.de/international/europe/0,1518,790138-2,00.html

Part 1, Section 3:  “The critics of the Euro”: http://www.spiegel.de/international/europe/0,1518,790138-3,00.html

Act II:  Life with the Euro (2001 – 2008):

Part 2, Section 1: “How the Euro Zone ignored its own rules”:

http://www.spiegel.de/international/europe/0,1518,790333,00.html

Part 2, Section 2:  “The Greek deception is discovered”: http://www.spiegel.de/international/europe/0,1518,790333-2,00.html

Act III:

Part 3, Section 1:  What options are left for the common currency? http://www.spiegel.de/international/europe/0,1518,790568,00.html

Part 3, Section 2:  Greece adrift http://www.spiegel.de/international/europe/0,1518,790568-2,00.html

Part 3, Section 3:  Design defects, political weakness, public disinterest http://www.spiegel.de/international/europe/0,1518,790568-3,00.html

Part 3, Section 4:  Are European rescue efforts doomed to fail? http://www.spiegel.de/international/europe/0,1518,790568-4,00.html

Political Risk in the Middle East: The Emergence of Turkey

In case you missed the important and perceptive article by Doug Saunders, in Saturday’s Globe and Mail (“Why the West quietly cheers Turkey’s Rise,” 17 September 2011, A16: http://tinyurl.com/3sucw5d), here is a short summary: Turkish Prime Minister Recep Tayyip Erdogan was well-received during a visit last week to the capitals of Egypt, Tunisia and Libya. This and other recent initiatives appears to mark a significant shift in Turkey’s foreign-policy orientation, away from Europe and the prospect of EU membership and toward the Arab world, which of course remembers Constantinople as the capital of the Ottoman Empire, which ruled much of the Middle East and North Africa for four centuries, until it finally collapsed for good in 1922.Political Risk in the Middle East

Prolonging the Agony: Europe’s Sovereign Debt Crisis

When will the senior political and financial leaders in European countries come to their senses? When will they concede that their current policies to contain the debt crisis are not working and cannot be made to work? How long are they going to prolong the agony of waiting for the next wave of contagion to strike?

Prolonging the Agony

eBook / PDF versions available

Two of my books from The University of Ottawa Press – The Doom Loop in the Financial Sector and The Priesthood of Science – are available as ebooks or PDF file: http://www.press.uottawa.ca/search/node/leiss.

In addition, all of my books from McGill/Queens Press are available as eBooks for libraries. These include:

9780773575356 Leiss, W – C.B. Macpherson

9780773561922 Leiss, W. – The Limits to Satisfaction: An Essay on the Problem of Needs and Commodities

9780773562219 Leiss, W. – Under Technology’s Thumb

9780773564794 Leiss, W. – The Domination of Nature

9780773569515 Leiss, W. – In the Chamber of Risks: Understanding Risk Controversies

9780773572409 Leiss, W. – Mad Cows and Mother’s Milk: the Perils of Poor Risk communication

9780773564671 Leiss/Chociolko – Risk and Responsibility

Financial Risk Management: Duping the Rubes

Before 2008 financial industry professionals arranged to deceive local government officials around the world about the risks inherent in their “structured” products, pilule costing the citizens those officials worked for huge losses they could ill afford. Much of this sad story has been told in excellent investigative journalism accounts published in The New York Times, some of which are referred to in my 2010 book, The Doom Loop in the Financial Sector and Other Black Holes of Risk (University of Ottawa Press), pages 38-43. Here I refer to developments occurring after the book was finished, as well as one other newly-reported important episode, involving school districts in the state of Wisconsin.

Duping the RubesRev3 [PDF]

Update: the PDF was updated October 3

Difficult Risk – Risk Tradeoffs: Political vs. Financial Risk in the EU

There was an important article by Jack Ewing and Liz Alderman in the August 10 edition of The New York Times, thumb entitled “Some in Germany want Greece to temporarily exit the Euro Zone.” This article takes up issues that have been quietly heating up in the background for some time already but which are, cialis inevitably, becoming harder to ignore. Ever since the first EU bailout of Greece in May 2010, and intensifying with the subsequent Portuguese rescue mission and especially the second Greek one, both in 2011, comments emanating from Germany and elsewhere have cast aspersions on the “profligate southerners” who have come to depend on their “frugal” northern compatriots to rescue them from financial disasters of their own making.

Full article: Risk Risk Tradeoffs [PDF]

Fat Tails and Climate Change: Catastrophic Failures in Risk Management, 5

Image courtesy of UNEP / click image for original

The phrase “fat tails” became familiar to some people after the storm broke in 2008’s global financial crisis. A fat tail refers to the probability and consequences of a possible event that is outside the bounds of our normal expectations, find as defined either by our prior experience or by accepted theories – for example, link theories of the behaviour of financial markets.1 More specifically, it refers to the probability of an adverse event (such as a financial crisis) that is both more likely to occur than is “normally” expected, and that if it should occur could have catastrophic dimensions. [See www.fattails.ca and the lovely 2010 animated graphics in The Economist: http://econ.st/n9xYZq.]

Fat Tails and Climate Change PDF

Risk Management Cases: Drilling for Shale Gas

Image courtesy of 32BJ/Flickr

Environmental risks associated with drilling for shale gas, prescription and the extraction process known as “hydraulic fracturing” [“fracking”], are receiving a good deal of attention in Canada, the United States, and elsewhere.

The state of New York has had a moratorium on shale gas development for the past year, but Governor Mario Cuomo has recommended that it be lifted in favour of permitting activity in selected areas. The Province of Quebec now has a two-year moratorium in place and has indicated that further research will be required before it is known whether the environmental risks can be limited to acceptable levels.

Readers who are interested in this issue, especially those who live in or near areas where underground shale deposits may attract this activity, will be interested in the following current resources.

Shale Gas Drilling [PDF]

Financial Risk: The World turned Upside Down

Image courtesy PIAZZA del POPOLO / Flickr

Here’s the latest from the Greek debt crisis:

“Europe is seeking to avoid a default at all cost because it could also initiate payment of credit-default swaps, there with unpredictable results. There is little public information on which financial institutions have sold credit-default swaps and might have to absorb losses if Greece defaulted, there but it is likely that American banks and insurance companies have taken on the largest share. The shock to the global economy might compare to the collapse of Lehman Brothers in 2008, illness the European Central Bank has warned.” (Jack Ewing & Landon Thomas Jr., “Europe faces tough road on effort to ease Greek debt,” The New York Times, 4 July 2011)

Wait a minute! In credit default swaps the first party pays a premium to a second party in order to “insure” the value of an amount invested in corporate or government bonds made by the first, and the second party guarantees to make up the shortfall if that investment loses value, for example where the issuers of the bonds default on their debt.* Derivatives such as credit default swaps are a risk management strategy for investors, protecting them (for a price) against large losses. So how does this very sensible risk mitigation strategy, used by individual investors, end up causing or exacerbating another broad financial crisis?

The World turned Upside Down

Catastrophic Failures in Risk Management, 4: The Terrorist Attack on Air-India Flight 182

Image courtesy Corinna A. Carlson / Flickr

The month of June 2011 marks the first anniversary of the release of Air India Flight 182: A Canadian Tragedy, illness the final report of the Commission of Inquiry into the Investigation of the Bombing of Air India Flight 182, troche headed by Mr. Justice John Major.

The mid-flight destruction of Flight 182 off the Irish coast on 23 June 1985 killed all 329 passengers and crew; an explosion at Narita Airport in Japan, which was part of the same terrorist plot, killed two baggage handlers there. The resulting toll represents, still today, the second-largest loss of life (second only to the September 11, 2001 events in the United States) in a single terrorist plot ever to occur anywhere in the world.

Catastrophic Failures in Risk Management 4 [PDF]

Catastrophic Failures in Risk Management, 3: Blood Donation Risk and Gay Men

Image courtesy vincent0849 / Flickr

As we are now seeing in the long-running global financial crisis, decease the initial stages of catastrophic failures in risk management can have follow-on consequences over long periods of time. In the case of blood donation risk, the infection of blood recipients by the HIV and Hepatitis C viruses in many countries around the world, including Canada, in the 1980s was such a catastrophic failure. This risk is known as “transfusion-transmitted infection” (TTI). Full post here: Catastrophic Failures in Risk Management 3 [PDF]

Catastrophic Failures in Risk Management, 2: The Never-Ending Global Financial Crisis

With increasing frequency comments on the ongoing sovereign debt crisis in Greece and the euro zone include a reference to the need to avoid a repeat of the collapse of the investment bank Lehman Brothers in September 2008. The basis for this otherwise puzzling comparison is the concept of “contagion,” that is, cascading failures in the financial sector – the “falling dominos scenario” – which once started with a single “event” cannot be halted, by any means currently at our disposal, until other (perhaps many other) large losses occur.

Full post here: Catastrophic Failures in Risk Management 2 [PDF]

PPT presentation by Dr. Atsuo Kishimoto

Dr. Atsuo Kishimoto is a member of the Research Institute of Science for Safety and Sustainability (RISS), National Institute of Advanced Industrial Science and Technology (AIST) , Onogawa 16-1, Tsukuba 305-8569, Japan. This presentation was delivered at the iNTeg-Risk Annual Conference, 7-8 June 2011, in Stuttgart, Germany and is made available here with the kind permission of Dr. Kishimoto:

Atsuo Kishimoto, “Risk governance deficits in the multiple risk situation: The Great East Japan Earthquake, Tsunami, and Fukushima nuclear accident” [PPT]. IR_JP 1 4_Kishimoto