Maadi Cup 2025 and the Black Swan moment

Currently down at the NZ secondary schools rowing regatta – the Maadi Cup – at Lake Karapiro near Cambridge. Today whilst waiting for some crews to come down the course I spotted a black swan approaching the finishing line with a clear lead on any other competitors – see photo. This reminded me of the ‘black swan’ moment in economics which refers an unpredictable event that is beyond what is normally expected of a situation and has potential catastrophic consequences.

The term is based on a Latin expression which presumed that black swans did not exist. The expression was used until around 1697 when Dutch mariners saw black swans living in Australia. After this, the term was reinterpreted to mean an unforeseen and consequential event.

Nassim Nicholas Taleb book ‘The Black Swan’ (2007) describes a black swan as a highly improbable event with three principal characteristics:

• its unpredictability;

• its massive impact; and

• after it has happened, our desire to make appear less random and more predictable than it was.

The GFC unquestionably meet the criteria as a Black Swan. No one saw it coming and no one knows how it is going to end. Nassim Nicholas Taleb could see the banking crisis being realised, and this quote from “The Black Swan” explains partly the rationale for the environment. Remember it was written when the world was awash with cheap credit and leaders were content with what was happening.

“So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks – when one fails, they all fall. The increased concentration among banks seems to have the effect of making financial crises less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur I shiver at the thought.” Pages 225-226

The same can be said about Covid-19. This unexpected and hard-to-predict event was not within the range of normal expectations. However it resulted in a major economic contraction on a global basis.

Economist Hyman Minsky once wrote a thesis about economic stability which is more applicable to the GFC – Black Swan event.

“If you have a wonderful, stable world and, better yet, it is growing nicely and nothing is going wrong, you are likely as the years go by to take more risk. As time passes the cost of taking risk gets less and less because interest rates come down. You can imagine that people will get carried away into thinking such conditions are permanent and take on record levels of debt. They think conditions will always be good. And then all it takes is one small event to create instability.”

2025 – Black Swans – from Politico

• A challenge to Putin’s rule

• A secret deal to stop Iran from developing nuclear weapons

• Market crash triggers a global panic

• Trump and Xi to negotiate and compromise

• Major disruptions from cyber-attacks

• A two state solution

For more on economics courses (CIE, NCEA and IB) view the key notes (accompanied by fully coloured diagrams/models) on elearneconomics that will assist students to understand concepts and terms for external examinations, assignments or topic tests.