Global Risk Report - 2008

well, an excellent analysis

and a very sobering report.

First a comment on methodology.  Whereas last year's report was based on continuous survey of a number of independent experts, which gave sort of an aggregate picture of the risk environment, it was thought that this did not give a real understanding of the 'pathways of causation', ie where individual risks are interconnected and how the interconnections act on each other to affect risk transmission and severity.

For 2008, they adopted a different approach to risk analysis, which IMO gives a much more powerful holistic mindmap of how to conceive of risk, as described here:

For the 2008 report, the Global Risk Network considered the application of social network analysis to understand correlation between global risks, constructing a network diagram with nodes denoting individual global risks and ties showing the strength of correlation between the risks. Rather than treating risks as discrete units of analysis, the focus is on how the structure and ties affect risk transmission.

Perhaps a picture is worth a thousand words here.

(click to enlarge) Note: The sizes of the nodes in the social networking diagram indicate the assessment of the risk itself. The thickness of lines represent strength of correlation, while proximity of the nodes represents similarity of correlations Source: Witold Henisz, Associate Professor of Management, The Wharton School, University of Pennsylvania, USA, based on expert assessments of correlation (October 2007).

All 'safety concerns' are hypothetical.  If not, they'd be called side effects...

---

by: SusanC @ Thu Jan 24, 2008 at 01:57:49 AM CST

their risk assessment for pandemic

has changed from 2007.  Interesting.

On a scale of 1-5, with 5 being most severe or most likely, here are the assessments as compared to 2007

economic losses vs likelihood

year	Likelihood	Severity
2007	2	4
2008	3	4

For Lives Lost vs likelihood:

year	Likelihood	Severity
2007	2	4
2008	3	5

The following chart shows the lives lost vs likelihood in a different way.  Compared to other risks, you can see that in terms of severity, pandemic ranks just under infectious diseases in developing world, and food insecurity, which also affects developing country more.  Hence, for developed countries, pandemic is the highest rated risk in terms of lives lost, and with a "5-10%" likelihood.

All 'safety concerns' are hypothetical.  If not, they'd be called side effects...

---

by: SusanC @ Thu Jan 24, 2008 at 02:24:20 AM CST

pandemic risk

that looks trange to me, that they increased their pandemic risk perceiption
for 2008 as compared with 2007.
We flubies presumably felt more risky in Jan 2007 (?)

I guess, it's just because the informing process is so slow.
Study results often require 1-2 years to be published.
Earlier economical analysis apparantly tended to ignore completely
the aspects of H5N1 from the medical/epidemiological/virological research.
Only slowly this is being acknowledged by the economists.

I calculate $50B expectation value of economical loss for 2008
due to pandemic danger. Assume 1/4 of this as the part for USA,
assume preparedness to half the impact, that would justify expenditure
of $6B per year for USA on preparedness.
The budget was "only" $7B for 3 years in late 2005.

And that's just the economical loss.
Expected number of lifes lost - category 5 , ">1million"
that's not informative. Well, let's see :
wordbank estimated $1500B loss worldwide in case of a pandemic with
7e7 deaths (?), that's 25M deaths for a WEF-pandemic with $5e8 damage.
Or an expectation value of 2M pandemic deaths for 2008, with
a probabaility of 0.03% for the average of us to die from panflu
in 2008 as compared to 0.01% to die from seasonal flu.

ask experts for their subjective
panflu death expectation values
and report the replies

---

by: gs @ Thu Jan 24, 2008 at 04:33:56 AM CST

[ Parent ]

unclear

remarcable,strange,obvious how they are trying to make statements about the
risks but at the same time are trying to be unprecise about their estimates.

Then later sometimes they add definitions to the unprecide statements,
to make them more precise which is appreciated.
e.g. for the likelyhood,severety definitions.

But at the same time they create other,undefined words ...
It's maybe just in the nature of our education and
social behaviour, that we do this. I frequently see this
in TV,newspapers - clear answers are avoided.

I also appreciate that they use fractions now for likelyhood.
(which however aren't yet defined)

Best would be IMO, if they just give yearly expectation value (and
maybe deviation) of the specified risks.


ask experts for their subjective
panflu death expectation values
and report the replies

---

by: gs @ Thu Jan 24, 2008 at 08:12:11 AM CST

[ Parent ]

unbiased ?

also, when you look at previous reports, you get the feeling
that they are not very objective.
Maybe influenced by lobbyism or having the wish to make us
believe in some risks so we might change behaviour,
rather than projecting their factual estimates.

Or they just reflect what they hear in the news and if some
subject is on the reporter's radar, the risk is perceived higher.
The reporter's radar depends on what they estimate the masses
want to hear.

So we're partially getting what we believe and want to hear anyway,
rather than scientific analysis.

ask experts for their subjective
panflu death expectation values
and report the replies

---

by: gs @ Thu Jan 24, 2008 at 08:17:55 AM CST

[ Parent ]

previous years

summaries and links about previous reports:

2005,2006,2007,2008:

http://www.setbb.com/fluwiki2/...
http://www.setbb.com/fluwiki2/...
http://www.setbb.com/fluwiki2/...
http://www.setbb.com/fluwiki2/...

(to be completed, i.e. 2008, complete list of changes over the years
is on the wish-list)

ask experts for their subjective
panflu death expectation values
and report the replies

---

by: gs @ Thu Jan 24, 2008 at 08:25:47 AM CST

[ Parent ]

...

more and more, our words mean less and less.  they get used incorrectly, and the incorrect usage becomes common to the point that it becomes a new definition, and we lose precision in our languages.

---

by: c3jmp @ Thu Jan 24, 2008 at 08:56:14 AM CST

[ Parent ]

Euphemisms-

Society has a way of coming up with words/meanings/symbols that shield them from having to emotionally invest in saying something real.  The more advanced we become, the less honest we become, even with ourselves.  It's proportional.  We probably have a better handle on reality without needing a study to spell it out for us than the superwealthy, but then poor farmers in India probably are more in tune with grim reality than we are.  The report serves to quantify scientifically and mathematically, what we can all see, hear, smell, taste and touch.  We know what's true without having to intellectualize it and insulate ourselves from it.  This is basically a report of what is scarey in the world, and how scarey those things are in comparison with one another, without anyone having to say "that scares me." Or, "my PPF just pushed the red button you're NEVER supposed to push!"   Heh...  

Millions for defense, but not one cent for tribute!

---

by: flubergasted @ Sun Jan 27, 2008 at 02:11:41 AM CST

[ Parent ]

a couple more interesting and important points

Globalization of risk

Interdependency implies that we are all vulnerable to disruptions in the global flow of people, capital and technology. But there are at least two additional elements to the globalization of risk which may broaden our understanding of the mechanics of interconnectedness in the global risk environment.

1. Risk squeezing

   ...a delocalization of risk. Even as primary risks in production are reduced in one location, those risks may be "squeezed" to new centres of production where costs, standards and conditions are lower. Some of the effects of risk squeezing may remain in geographies of production, posing an ethical dilemma at the heart of globalization.

   But other effects of risk squeezing may have wider global consequences.

   First, and most clearly, risk squeezing simply displaces the original source of risk, but without mitigating the systemic consequences of risk and, occasionally, worsening both the underlying risk and aggregate systemic vulnerabilities to it....

   ...Second, as semi-finished or finished products are exported, the effects of "risk squeezing" may be felt in less obvious and less controllable ways, with major consequences in importing countries.

   (example given was lead in children's toys)

   ...Third, the perception of lack of transparency in production processes and supply chains may undermine popular support for globalization.

2. Risk homogeneity

   While specific vulnerabilities will remain, interconnectedness, globalization and the spread of similar economic and social structures may generate a degree of homogeneity of risk at the global level.

   One example of this is in health risks. Just as globalization has increased the commonality of habits and lifestyles, so has it raised the homogeneity of the risks associated with those lifestyles. Non-communicable diseases, such as cardiovascular disease, cancer and diabetes which are traditionally associated with a Western lifestyle, have rapidly become prevalent in the developing world as lifestyles have moved more towards urban and less physically active jobs...

   Finally, global travel patterns have made the risk of a pandemic homogenous across the world. All countries are equally vulnerable to a pandemic that originates in one country.

The policy conclusion: global cooperation is required

To address externalities at the golobal level and the increased homogeneity of global risks, international cooperation is a necessity. One potential forum for such cooperation would be an annual meeting between country risk officers where they could review global risks and mitigation strategies.  Problems between individual countries could be dealt with on a bilateral basis.

All 'safety concerns' are hypothetical.  If not, they'd be called side effects...

---

by: SusanC @ Thu Jan 24, 2008 at 02:42:16 AM CST

Overall conclusion

This year it will be difficult to manage global risks.  Both political and economic uncertainties are likely to act as a focus for global discussion and energy.....

But, for many of the global risks discussed in this report, the question of ownership of these risks remains unanswered. The fragmentation of ownership of global risks and the complexity of interdependencies will make equitable and sustainable management of global risks hugely challenging.

All 'safety concerns' are hypothetical.  If not, they'd be called side effects...

---

by: SusanC @ Thu Jan 24, 2008 at 02:44:58 AM CST

[ Parent ]

applying a region-at-risk model to global pandemic mitigation

Another example is global pandemics. One consequence of this growing risk homogeneity is that the case for common and coordinated global mitigation action has strengthened. In section 5 of the current report, we look at how a region-at-risk model may be used to identify potential coalitions of actors around global risk issues and how a forum of country risk officers could provide a mechanism for coordinating the mitigation of global risks.

Elaboration later in the report:

Region at risk: A basis for identifying international risk mitigation coalitions?

One strategy to activate coalitions to mitigate global risks may lie in an improved understanding of national risk exposures and identifying clusters of countries that are exposed to the same risks in similar orders of magnitude.

The region at risk model, which will be developed in 2008-2009, will achieve this by drilling down into the frequencies and severities of global risk at the national level, gathering expert input on country risk exposures, and creating a framework which is compatible with the global approach taken in previous Global Risk reports.

All 'safety concerns' are hypothetical.  If not, they'd be called side effects...

---

by: SusanC @ Thu Jan 24, 2008 at 03:24:04 AM CST

[ Parent ]

dealing with global risks

- international cooperation, yes (by whom? by common folks too!)
- local resilience as a multilayered approach (i don't know what i mean by this exactly, btw)
- international stress on the need for local resilience (airbags for those who still want the speedy cars)
- rethinking flows (as in do we really need to move so much stuff around?)
- create and disseminate better ideas and concepts and tools of all sorts (share the recipes, not the ingredients)
- learn from successes and focus on assets (we already have what's needed, or maybe not all we need, but we're on our way)

(mini-rant)
Q: also, why so many toys in the first place?
A: oo, it hurts the (my) economy!
Q: are you selling burgers or toys (with a burger as an add-on)?
A: erm, i'm selling a dream and a distraction; oh, and you're buying it
(end mini-rant)

http://storyofstuff.org/

You arm yourself to the teeth just in case.  You don't leave the gun near the baby's hand.

---

by: lugon @ Thu Jan 24, 2008 at 03:59:19 AM CST

[ Parent ]

Multi-layered approach to resilience

This concept has stayed with me all week.

My classroom isn't the one with the fancy schmancy projection technology, so I'm still using an overhead projector, and I think of transparencies, one layered over another. But then I also think of Google maps or GPS maps and how you can zoom in and zoom out. We need resilience that can zoom all the way in and all the way out.  Global cooperation and resilience is the biggest picture; household resilience is resilience zoomed all the way in.  There needs to be resilience at every "zoom level" so to speak.  There are some levels or some layers that will be critical that we haven't paid adequate attention to yet, not systematically, because there's no infrastructure for organization and action at that level.  One example is the neighborhood level or the "world within easy walking distance" level.  We're actually going to have to marshal planning and action at that level, too, as we know.  I think this zoom-in, zoom-out principle can help us identify missing levels of resilience in all sorts of areas.  

I hope this makes some sense; I'm struggling for the right language to communicate what I think is an important concept.  Let's say we're holding a GPS in our hands and we zoom in or out, and the next level of magnification just isn't there.  Blank screen. In terms of preparation, that missing level is going to pose challenges; we're going to be in the dark for a bit.  We'll have to create that level of resilience on the fly, if that is possible, when we could have planned for it instead.

---

by: InKy @ Sat Jan 26, 2008 at 11:30:04 AM CST

[ Parent ]

multilayered approach to resilience

InKy, you may be seeing more than what I wrote, but that's what we're here for, so thank you!

Maybe one suggestion would be to tell all entities, on each level, to look to the inside and to the sides and search for dangers and assets.

That takes a conversation, as in ReadyMom's vision of people simply talking about this stuff in a matter-of-fact, open conversation fashion.

We've seen it happen here, when people just look inside their pantries and say "Hmm, this is useful, that is missing, that other thing I hadn't thought of".

It'll look easy in retrospect.

So who can already share their experience at the neighbourhood level?  Are hospitals sharing their plans?  Are states meeting up with other states to learn from each other?

InKy talks about an education environment: in this test, we'd better cheat and copy each other's best stuff!  Having someone compile "promising practices" is better if people are looking, and it may be even better if people talk to each other!  Is there a meta-practice of talking with your over-the-fence neighbour?

Let's keep trying to make sense.

You arm yourself to the teeth just in case.  You don't leave the gun near the baby's hand.

---

by: lugon @ Sat Jan 26, 2008 at 16:47:50 PM CST

[ Parent ]

...

dangers and assets may refer to the same thing.  if neighbors engage and prep, they can be assets.  if they choose denial and refuse to prep, they may become a danger when it kicks off.  risk assessment is not static.

---

by: c3jmp @ Sat Jan 26, 2008 at 17:52:17 PM CST

[ Parent ]

...

another example...  a large supply of fuel is an asset - it provides a means to cook, heat, do a number of things.  if it is stored outside in an area that is not protected and secure, it can become a danger if things become hostile.  danger or asset - which is it?

---

by: c3jmp @ Sat Jan 26, 2008 at 18:07:42 PM CST

[ Parent ]

dangers and assets

The discussion looks philosophical, and it is to a certain extent, but it also has some practical corolaries:

- The next pandemic virus will be interested in our behaviour (mainly number of contacts); not in our thinking, beliefs, money, etc ... unless these things translate into behaviours.

- Heads or tails: is it the same coin?  It is the same coin, but it doesn't behave as the same coin.  So we need to flip as many coins as possible, turning "those (people and things) that behave as dangers" into "those (people and things) that behave as assets".

- Our role may be one of un-hiding assets, both by thinking in the solitude of our own brains (and forums), and by going door to door to wake people up (and help them become assets).

Assets starts by being a three letter word.  At least I started that way. ;-)

You arm yourself to the teeth just in case.  You don't leave the gun near the baby's hand.

---

by: lugon @ Sun Jan 27, 2008 at 08:24:00 AM CST

[ Parent ]

Maslow and social glue

In many parts of the U.S., a neighborhood is no longer a community, but just households located within the same geographical vicinity.  Neighbors may or may not know each other.  (In my parents' day, in their home communities, everyone knew everyone.)  Many people lead lonelier lives than they did before society was so mobile, before there were televisions to entertain or an Internet to explore.  One source of community resilience, one thing that makes neighbors an asset rather than a threat, is the social glue that holds us together.  That glue in many places is dry and cracked and needs restoration.  

I hope this is less true elsewhere :-).

Maslow's hierarchy also offers clues as to the likely tipping points that will turn a human being from a danger to an asset.

People must be able to meet their needs for food, water, shelter, etc., before they can be relied upon to opt to uphold the bonds of society.  Their cooperation is more likely if they can see that collaboration is the best means they have of ensuring that their own and their family's basic needs are met.  Positive models - community solutions - need to beat the negative ones (roving gangs, for instance) to the punch by being disseminated and nurtured early.  
 

---

by: InKy @ Sun Jan 27, 2008 at 08:49:17 AM CST

[ Parent ]

A few more quotes on the four emerging issues

COMMENT: Some of the issues will be familiar, especially in light of our recent discussions on critical infrastructure.  But this report connects many elements together, and demonstrates our vulnerabilities very sharply indeed.

A. Systemic financial risk

The increasing complexity of financial markets, and the rate at which financial markets are evolving, make the task of avoiding and managing systemic financial risk extremely difficult. Increasing global interconnectedness has multiplied the possible pathways for the contagion of financial risk. Layers of leverage may have increased the possibility for magnification of risk. Financial innovation, in the form of complex financial instruments, may ultimately contribute to the opacity of systemic risk. At the same time, however, the increasing importance of the financial sector in the real economy has made the question of systemic financial risk more important than ever.

B. Food insecurity

In 2007, prices for many staple foods reached record levels. The price of corn in late 2007 was 50% higher than 12 months previously. The price of wheat was double. Global food reserves are at their lowest in 25 years and, as a result, world food supply is vulnerable to an international crisis or natural disaster.

Food security has emerged as a major risk, marked by both local and global consequences, trade-offs between different mitigation priorities and a disproportionate impact on poorer communities.  Embedded in a web of other global risks, there is considerable uncertainty as to whether food insecurity in 2007 is the result of short-term conditions which have existed in various times throughout history, or whether a more fundamental change is taking place, with a range of underlying trends bringing food from the sidelines to the centre of the global risk discussion in years to come.

C. Hyper-optimization and supply chain vulnerability: an invisible global risk?

The economic optimization of supply chains, with the geographic concentration of risk as a frequent corollary, has enhanced the systemic vulnerability to a supply chain failure. In September 1999, global semiconductor prices nearly doubled following an earthquake in Taiwan, China, a key centre for supply.  Supply chains frequently appear to disperse risk between multiple parties, but they can also, as in this case, lead to an unrecognized aggregation of risk.....

However, despite their importance both at the level of individual enterprises and at the level of the global economic system, vulnerabilities to the supply chain are generally poorly understood and managed. This is partly because the risks in the supply chain are obscured, as enterprises and governments may be indirectly exposed to a global risk disruption through a complex range of sub-supplier arrangements. But in some measure this is due to the range of possible global risk disruptions - from geopolitical risk to a natural catastrophe to pandemics. A US- or European-based company which sources key components from Asia will indirectly face risks that they may never encounter domestically, as well as very different cultural approaches to the management of risk. Conversely, a recent survey conducted by Marsh Inc. on 62 companies based in Asia found that only 21% had full business continuity plans to protect against business interruption arising from events such as natural disasters or terrorist attacks.

Energy and global risk: interconnected risks, disconnected incentives?

(Apart from general comments on energy prices, the most interesting part of this section, for this forum, is this chart.  Note the expected severe impact of a pandemic on the oil and gas industry.  This risk brings the maximum losses both within the industry and for GDP.)

All 'safety concerns' are hypothetical.  If not, they'd be called side effects...

---

by: SusanC @ Thu Jan 24, 2008 at 03:10:44 AM CST

related discussion on critical infrastructure resilience

and the role of the financial sector, here http://www.newfluwiki2.com/sho...



All 'safety concerns' are hypothetical.  If not, they'd be called side effects...

---

by: SusanC @ Thu Jan 24, 2008 at 03:14:55 AM CST

[ Parent ]

Confirmations

I skimmed this report last weekend.  What struck me was how closely my own sense of the big picture maps with the one afforded in the report.  I appreciated the attention to food insecurity and supply chain risks.  The case for building a measure of food self-sufficiency looms large. Rising prices will affect people's access to food whether or not a pandemic occurs in the near future.

---

by: InKy @ Thu Jan 24, 2008 at 06:14:35 AM CST

InKy: it hurts to be right, no?

"What struck me was how closely my own sense of the big picture maps with the one afforded in the report."

I still remember the shiver of seeing panflu in big letters long after I'd started paying attention.  My reaction was similar to yours: "sheeze, my nightmare is for real!".

Tough as it is, we must "smile in welcome" when we see this happening in increasing numbers.

And now we only need to see a growth in agreement as to what to do exactly.

Simple: if we recognise changes and adapt to them, we'll avoid collapse and enter something different.  Using less fossil fuel etc doesn't mean life is poorer inside.

You arm yourself to the teeth just in case.  You don't leave the gun near the baby's hand.

---

by: lugon @ Thu Jan 24, 2008 at 08:02:05 AM CST

[ Parent ]

...

not sure we can avoid collapse.  this is more akin to dodging a tsunami than a bullet, and for the billions of decision makers out there, many have been drinking from the same pitcher of Kool-Aid.  more and more, it appears that our species is on a tiny island, and it's not a question of whether we'll be hit by a tsunami, but which of several will hit us first, and from what direction - there isn't really a safe place to go.  tsunamis are just ripples, really - really, really huge ones.

---

by: c3jmp @ Thu Jan 24, 2008 at 08:35:25 AM CST

[ Parent ]

No breaks

The thing about seeing the conclusions I'd drawn writ large in analysis conducted by formidably knowledgeable people is that now I can't take little breaks from the knowing by saying to myself, "Well, maybe I'm wrong."
I'm at the point of acceptance and response, which is a good place to be, because I can target constructive action.  I think lots of us have reached that point. The challenge is scaling constructive action up by orders of magnitude so it makes a difference.  

---

by: InKy @ Sat Jan 26, 2008 at 11:13:35 AM CST

[ Parent ]

Sometimes Don't You Wish We Were Crazy?

Back when, one of the biggest personal shocks of coming to grips with the magnitude of the pandemic threat was finding reports like this, and others from major banking, financial and insurance institutions, that were talking about the pandemic threat in terms not less, but more dire than I had yet imagined.

These 'green eye-shade' folk spend their days and probably their nights making cold and calculated assessments of probability and severity for risks that spread across the entire risk horizon.  

And they are paid enormous sums of money to reveal what their conclusions are.

This WEF Global Risk Report is one of the few chances for us, the unwashed masses, to get a glimpse into that storehouse of information and opinion.  If you are not familiar with some of the names that follow (as I was not), it is worth googling them.  It is worth pondering what internal process must be required for their names to be attached on the front page of such a report - especially when the primary audience is the Who's Who of the Who's Who in global business and government.

A World Economic Forum Report
in collaboration with
Citigroup
Marsh & McLennan Companies (MMC)
Swiss Re
Wharton School Risk Center
Zurich Financial Services

http://www.weforum.org/pdf/glo...  

I cannot call it comforting when some of your worst fears are confirmed by people with these kinds of credentials - that while economies and societies can be very strong in a host of ways, they can all remain surprisingly and sometimes unpredictably vulnerable in others.  

There is a price that comes with confirmation of sanity.

ITW(Joel J)
Courage is resistance to fear, mastery of fear - not absence of fear.
- Mark Twain
 

---

by: Into The Woods @ Thu Jan 24, 2008 at 14:00:01 PM CST

[ Parent ]

do I wish we were crazy? ;-)

Yes and no.  I've gotten beyond that now, and it's a source of some comfort to know that a) either these powerful people are more clued up than last year's report suggested OR b) they are more willing to share a little of the truth.

Either way, it's better than the 2007 report, which IMHO was either a reflection or was at least partly instrumental in the great reluctance of tptb to speak to the public.  This report does not substantially improve things in the public messaging department, but at least it gives a reasonably credible description of both the pandemic risk AND the existing severe systemic stresses that serve as the backdrop to evaluate the actual consequences of a pandemic.

May I point out to anyone interested that this report is really worth reading in full, carefully and slowly so that you understand it, because too often estimates of pandemic risk are based only on the limited parameters that experts can agree on in the field of virology and epidemiology, but the background, the state of wellbeing or resilience of our global society is a critical component that will determine how well we will all survive it.  These issues will IMHO need to be brought to the attention of whoever is willing to listen, whenever the subject of pandemic comes up.  

In other words, the ability to understand and explain the sum total of our systemic risks is an important tool for rebutting skeptics.



All 'safety concerns' are hypothetical.  If not, they'd be called side effects...

---

by: SusanC @ Thu Jan 24, 2008 at 14:26:31 PM CST

[ Parent ]

rising prices, falling prices

rising prices, likelyhood 5-10%,severety > $1e12

but collapsing house and asset prices in USA,Europe
likelyhood 20%,severety >$1e12

???

I can't make sense of this. Other prices may not rise but
house prices may not fall ?

ask experts for their subjective
panflu death expectation values
and report the replies

---

by: gs @ Thu Jan 24, 2008 at 08:38:52 AM CST

USA

it's also US-biased, not really global.(terrorism,war,$,)
I'd be interested what values people from different regions would assign.

ask experts for their subjective
panflu death expectation values
and report the replies

---

by: gs @ Thu Jan 24, 2008 at 09:17:47 AM CST

[ Parent ]

the whole point of this report

revolves around the issue of globalization of risks, ie we can no longer assume risks in one part of the world have nothing to do with another.  How did you think the US subprime lending problem can have repercussions for stock and other asset prices all over the world and for sectors that are not directly housing related?  



All 'safety concerns' are hypothetical.  If not, they'd be called side effects...

---

by: SusanC @ Thu Jan 24, 2008 at 14:30:36 PM CST

[ Parent ]

Global Focus - US Bias In Part Due to Share of Global Economy

In Global Risks 2008, the Global Risk Network has focused on four emerging issues which may fundamentally shape not only the year ahead, but the decades to come. These issues - systemic financial risk, food security, supply chains and the role of energy - are all central to the functioning of the world economy and to the well-being of global society. The risks associated with them cannot be eliminated. But they can be better understood and better managed.

The stated focus is on risks to the global economy and global society.  The US economy constitutes about 1/5 of the global GDP.  

http://www.theglobalist.com/DB...

Our share of consumption is at least that or higher.

So from that standpoint, a certain degree of bias towards impact on the US would be expected.  


ITW(Joel J)
Courage is resistance to fear, mastery of fear - not absence of fear.
- Mark Twain
 

---

by: Into The Woods @ Thu Jan 24, 2008 at 14:35:53 PM CST

[ Parent ]

US

EC has about the same amount as USA, Japan,China also considerable.
But no claim about EU-recession,Euro,EU-wars etc.

6 claims directly related to USA, 11 indirectly.

ask experts for their subjective
panflu death expectation values
and report the replies

---

by: gs @ Thu Jan 24, 2008 at 16:14:38 PM CST

[ Parent ]

If America Sneezes, Does the World Still Catch a Cold?

Update 2008: If America Sneezes, Does the World Still Catch a Cold?

http://gaia.world-television.c...

Have not watched this yet, but it should be relevant.  

ITW(Joel J)
Courage is resistance to fear, mastery of fear - not absence of fear.
- Mark Twain
 

---

by: Into The Woods @ Thu Jan 24, 2008 at 17:53:27 PM CST

[ Parent ]

house prices and food prices are not linked

The supply and demand, investor confidence, job security, demographics, etc etc drive house prices.  Food prices are dependent on different variables.  As are energy prices, etc.

They don't have to rise and fall in step.  One of the worst combination is what we are seeing right now, falling asset prices plus rising inflation in non-housing related expenditures like food and energy.  



All 'safety concerns' are hypothetical.  If not, they'd be called side effects...

---

by: SusanC @ Thu Jan 24, 2008 at 14:13:58 PM CST

[ Parent ]

Hedonomics

And because of changes in the price measurements instituted in the last decade (including variable market baskets, volitility controls and 'hedonomics') we are not comparing apples to apples.

So the inflation hear about may be quite a bit less than what we experience day-to-day.  

ITW(Joel J)
Courage is resistance to fear, mastery of fear - not absence of fear.
- Mark Twain
 

---

by: Into The Woods @ Thu Jan 24, 2008 at 15:19:59 PM CST

[ Parent ]

Interdependence -

  First - thanks for the weblink Into the Woods

Page 9

 "Increasing interconnectedness has multiplied the points of potential failure and increased the significance of systemic linkages. Behavioural dynamics are critical. One example of the importance of risk transmission is the carry trade where there is potential for large, abrupt reversals of cross-border capital flows which could trigger systemic crisis."

   I had to think about this for it to sink in. Multiple points does not make us more secure - mutlitple sources. Instead we are more vulnerable - mote things to go wrong.

 My take "And we all fall down"

Kobie

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by: Kobie @ Thu Jan 24, 2008 at 15:45:24 PM CST

and we all fall down

Multiple points does not make us more secure - mutlitple sources. Instead we are more vulnerable - mote things to go wrong.

You are absolutely right.  One problem is our inability to assess and measure this risk, as explained in the report.  This is due partly to the intrinsic difficulty of assessing the likelihood of any event in a complex adaptive networked system, ie it is intrinsically unpredictable, and such systems are prone to sudden unexpected catastrophic failure triggered by a minor event.  There is the additional problem of lack of transparency, whether intentional or not.  

The other problem is conceptual, ie we lack the proper nomenclature to describe such systems in ways that make their nature obvious to most people's intuition.  eg when we speak of 'supply chains' do you have in mind a linear structure with a clear order and sequence of components?  In reality, since every single supplier for a particular product also has their own 'supply chains' both in parts and services for the multiple components of their business to function, we are in effect talking about a complex network for which one is simply unable to determine the consequence of any one change in any of the nodes at all!



All 'safety concerns' are hypothetical.  If not, they'd be called side effects...

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by: SusanC @ Thu Jan 24, 2008 at 16:01:27 PM CST

[ Parent ]

relations

pandemic however doesn't seem to be influenced by the other risks.
Could OTOH contribute to those.

ask experts for their subjective
panflu death expectation values
and report the replies

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by: gs @ Thu Jan 24, 2008 at 16:16:37 PM CST

[ Parent ]

not supply chains, but supply *networks*

which brings even more complexity and unpredictability.

But I guess it may be seen (and behave) as a chain, if all incoming threads into a specific node fail at the same time.

Also, I think the number of intermediate nodes matters: if there are 15 middlemen from farm to table, the probability of anyone of them being sick is much higher than if there are just 5 middlemen or less.

Realising this is only the first step.

After some time, I learned to look at what a friend called "the amount of slack in the system": there's extra water in your heating tank (only you never thought of it), if schools close they become a resource for other things (kitchens, not beds), older students come back home and can take care of younger ones ... hey, even survivors increase as time goes on (yes: their number increases more slowly if CFR is high and we keep CAR low)!

So I think this is the next step: what are our assets (moms! information! ideas!)?  How can we use what we have fast, put them to work before things crumble down (print "good home care" in every newspaper before paper runs out), connect them to make the most of them (we all want to learn if statins or simplemasks or whatever do work, once a pandemic has started), isolate the extremely important ones so they don't fail (reverse quarantine for grid workers)?  And another important question: how can we improve our chances in a pandemic while we improve our chances against anything else, and improve our quality of life now (some save money by stocking up, of find joy in gardening, etc)?

Can it be done?  Yes.  Shall we do it?  Hmm, that's a tough one, and better left as homework for the reader.  :-)

You arm yourself to the teeth just in case.  You don't leave the gun near the baby's hand.

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by: lugon @ Thu Jan 24, 2008 at 17:04:22 PM CST

[ Parent ]

the nature of networks

and what happens in a pandemic, was the subject of discussion at the Exportable lessons from Katrina meeting, as presented by James Lawler from the WH.  Read what he said about sandpiles.



All 'safety concerns' are hypothetical.  If not, they'd be called side effects...

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by: SusanC @ Thu Jan 24, 2008 at 16:05:41 PM CST

[ Parent ]

implication for pandemics

(cross-posted from above link)

Pandemics, or epidemics, alongside earthquakes, landslides, solar flairs, financial markets, are all examples of such systems with self-organized criticality, ie the complexity observed emerged in a robust manner that did not depend on finely-tuned details of the system, implying also that efforts at manipulating those details will not affect the overall criticality, or it's unpredictability.

This is an important lesson for policymakers, that however well-structured and implemented, systematic top-down approaches to pandemic mitigation may have benefits at a microscopic or local level, but the bigger picture, the macroscopic criticality of the system cannot be mitigated by such means.



All 'safety concerns' are hypothetical.  If not, they'd be called side effects...

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by: SusanC @ Thu Jan 24, 2008 at 16:09:33 PM CST

[ Parent ]

$600 billion

by far the two largest considered risks by weforum :

$600billion (!!)  expectation value of damage due to

• House and other asset prices collapse in the US, United Kingdom and continental Europe,
reducing consumer spending and creating a recession.

$210billion expectation value of damage due to

• Multiple developed economies take steps (tariffs, WTO disputes) which slow existing trade and further
undermine talks on increased global integration.  

ask experts for their subjective
panflu death expectation values
and report the replies

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by: gs @ Fri Jan 25, 2008 at 07:51:49 AM CST

600

well, it's 20% likelyhood and damage > $1000 billion
so expectation value of $200 billion.

I assumed the average progression
from one level to another, so that would be $2115 billion for the next
level, but since there is no limit and all the subsequent
levels are included in this too, I assumed $3000 billion.

But as I said, I don't see this.
Falling prices for houses "and other assets" are hardly
any damage to the economy at all.
It's bad for the potential sellers but good for the
potential buyers. And smaller prices for goods is advance,
is progress - it's what the economy, the research is seeking for.  

ask experts for their subjective
panflu death expectation values
and report the replies

---

by: gs @ Fri Jan 25, 2008 at 08:06:46 AM CST

[ Parent ]

One aspect is the amount of debt carried by the average family.

If they borrow against the value of their homes (home equity loan), and spend it on consumables (travel, tv, etc.) instead of home improvements, and then the house value goes down, doesn't that impact the economy?  Their debt looks worse (I don't know if the bank does anything about the drop in value), they can't sell to get out of it, and they probably won't be spending much in the future.  (Unless they have more credit cards to max out, but their debt will crush them.)  JMO.

"The truth does not change according to our ability to stomach it."  Flannery O'Connor

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by: Jane @ Sat Jan 26, 2008 at 09:38:06 AM CST

[ Parent ]

cheap is good

they still have the house. They bought the house, because it had some value
for them. When prices drop, then they can buy it cheaper,
but the "usage-value" for them doesn't change.

Suppose you buy a computer and technological advance makes computers
cheaper and more powerful so your computer drops in price.

Or suppose someone invents how to build cheaper houses
and so prices drop.

Does that affect negatively the economy ???

Do we have a "global risk" that engeneers invent cheaper houses ?

ask experts for their subjective
panflu death expectation values
and report the replies

---

by: gs @ Sat Jan 26, 2008 at 15:13:29 PM CST

[ Parent ]

Not necessarily 'cheap' houses...

But I wish someone would invent "less expensive" houses! ;-)

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by: Bronco Bill @ Sat Jan 26, 2008 at 15:21:57 PM CST

[ Parent ]

...

also keep in mind that a good portion of the outstanding debt may well be the house...  that may just be a US thing - most folks here buy homes via bank loans or mortgages.

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by: c3jmp @ Sat Jan 26, 2008 at 17:47:02 PM CST

[ Parent ]

Doesn't it make a difference if they don't own the house?

The bank owns most of it until they pay off the mortgage.  If they have taken home equity loans, they may own nearly none of it, but owe huge debts to different entities.  If they sell it now, it won't cover their mortgage debt, not to mention their other debts.  

They can still live in it, so long as they can make the payments, so it's shelter.  When prices drop, they could possibly buy a cheaper house, but they still owe on the first house, so as I see it, people are getting stuck.

gs, I don't know if you've seen the ridiculous advertising we have here, but it's insidious.  "Don't you deserve a huge tv?  Don't wait! Buy it now! No money down, no interest for 2 years."  This is done for furniture, rugs, and other appliances.  It's all about instant gratification.  No waiting.  And no mention of the total you have to pay at 2 years.  There are income tax offices (private businesses, not government) that will figure your taxes and give you an instant loan.  Oh, boy, no waiting for your refund check!  The ads never tell you the interest cost.  There are machines in grocery stores that will count your change and give you the cash and charge only 8.9%.   Aren't we lucky to be saved so much work?!  

"The truth does not change according to our ability to stomach it."  Flannery O'Connor

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by: Jane @ Sat Jan 26, 2008 at 18:01:20 PM CST

[ Parent ]

$5000 billion in asset values lost in January

The global gyrations in stock markets have knocked $5 trillion off asset values so far this month according to the Economist. I agree that such declines are not permanent damage, though lower asset prices usually cause lower consumption, and that can cause unemployment. If pandemic flu arrives and is bad, we can expect sharp shifts in relative prices. People will want to stockpile food and other necessaries and forgo hotel trips, travel and many luxuries. Disruptions to the supply networks, hopefully sporadic rather than permanent, will make preps essential. No nation or community is really prepared for this yet and preppers are a tiny minority. We can hope it holds off and medical advances eventually help to contain the damage.  

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by: INFOMASS @ Sat Jan 26, 2008 at 21:50:05 PM CST

[ Parent ]