Transactions: June 18, 2012

Recently, pundits with a statistical bent and a penchant for the abyss engaged in a parlor game that might go by the name of "Quantifying the Apocalypse." This game regularly occurs at financial firms, albeit in private. But The Economist's Greg Ip decided to roll his dice publicly. He picked three possibilities -- China would suffer a hard landing, Europe would abandon the euro, and America would tumble off the fiscal cliff -- and attached various probabilities of avoiding them: good outcome in China, 80%; resolution in Europe, 60%; no U.S. debt default, 70%. Ip never explains how he arrived at these numbers. For all anyone knows, he plucked them from his medicine cabinet. Nonetheless, the game was on. Ip's larger point was that it's not just one risk wigging folks out, it's the combination, like mixing Oxycontin and Wild Turkey. He calls this "the big hairball of risk." Reuters' Felix Salmon, an avid probability maven, then did some statistical legerdemain they never taught English majors and calculated the likelihood of getting off scot-free (33.6%), getting hammered (45.2%), getting worse than hammered (18.8%) and, the door prize, apocalypse (2.4%). He also provided a colorful pie chart. Salmon's post then skipped merrily through the blogosphere attracting comments and tweets.

Welcome to the blogosphere's version of risk management. Ip and Salmon's larger point is rational to the point of lunacy; but that's not what's attention-grabbing. It's the numbers; some even have decimal points! Pin a number on a brewing disaster and you'll attract a crowd; of course, it may not do you much good. (See J.P. Morgan Chase & Co.) Ip unsettlingly suspects his view may be optimistic. What if Israel attacks Iran, civil war breaks out in Syria (that hasn't begun yet?), or populist López Obrador wins in Mexico? If López Obrador is your measure, I could add any number of nuttier left and right movements muttering around the world. What about global warming? What about fracking carving a giant fissure to the earth's core? What about Ebola, SARS, a foreign flu? What about India and Pakistan lobbing nukes at each other? Maybe North Korea will finally get a rocket up. What are the odds of alien invasion or more Dracula movies?

Given that dark view, is it any surprise folks want to build walls, raise barriers, order cordons sanitaires? Confess, you really just hope Europe will go away, don't you? And China too. Kiss off Vladimir Putin, Hugo Chávez, maybe López Obrador. (Osama, happily, is kaput.) Let the queen have her Jubilee. Let Angela Merkel have Spain. We don't give a fig. Don't feel bad when fancy talkers on cable hurl the word "xenophobia" at you. A little isolationism is part of the originalist tradition in American life, right there with Austrian economics and "One Nation Under God." Washington was an isolationist. Jefferson, Madison and Tom Paine were too. No entangling alliances. No foreign wars. No chance of contagion. Good fences make good neighbors. Both left and right claim globalization smells funny. Without the rest of the world, we could manufacture again; we wouldn't have foreigners clucking over our credit card woes. Our solution to the euro zone? What euro zone? To China? Tariffs. A little autarchy never hurt anyone. Self-reliance, Waldo. Job creation.

This, of course, is crazy talk, but then so is austerity. Globalization, like Ip's "big hairball of risk," is a tangle we cannot escape from. Washington and Jefferson had a nearly empty continent to fill and a big ocean separating them from Old Europe. We can fly to China in a day. A missile can get here a lot faster. We want iPhones. Our standard of living depends on free trade. And if you want to see the joys of autarchy, check out North Korea. Still, how do you mentally cope with this pileup of gestating crises and remain sane? First, you can dig a hole in the backyard and hide -- or, in financial terms, hoard cash. Many have opted for this strategy, which makes a bad situation worse. Second, you can recognize how complex unfolding history really is. Ip's "outcomes" fail to reflect the shadings and ambiguities of most events, which end up neither good nor bad, but somewhere in between. Probabilities are not predictions; if they were, we wouldn't be in this pickle. Of course, there are exceptions, like the 1930s, when the barrel spun and bad numbers inexplicably lined up like a firing squad. Third, you can realize how the wired world is shot through with tightly coupled potentialities and compensatory dampening forces. Fourth, you can embrace those probabilities and consign yourself to fate's grinding gears. It appears that we accept those self-fulfilling odds, even if we know they're empirically suspect, because we've lost faith in ourselves. That's a lot scarier than a pie chart.