protagonist wrote: ↑
Tue Oct 31, 2017 9:26 pm
When people speak of stability they are ignoring the fact that black swans are what drive history (and the economy)... and globalization increases their impact.
Actually, increased stability and increased tail risk are perhaps not mutually exclusive.
Taking the U.S. economy as an example (where we have decent historical data), the frequency
of economic recessions has certainly declined over the past 150 years (in gray, chart below). Prior to 1940, the U.S. economy was in recession over 40% of the time; since 1940, however, it's been in recession about 15% of the time. There's been a clear trend toward increased stability and moderation of the business cycle.
At the same time, there's recent evidence that the severity
of economic recessions has increased. The two most recent recessions, starting in 2001 and 2007, have been economic jolts with lasting structural consequences — especially for employment, which has taken much longer than usual to recover (chart below). As you suggest, this may be due to increased globalization of the U.S. economy.
In short, with greater global connectedness, we could be experiencing less frequent, but more severe and consequential economic downturns. And this is before we get to black swans, with the prospect of a global pandemic, an environmental catastrophe, or a nuclear conflict.