I’ve been writing lately about right tail risk, which refers to the possibility of the occurrence of unusual and unexpected events which might make the whole global economy better. With most of the risk management world squinting and scanning the horizon looking for systemic risk events, I’d like to take at least one contrarian moment to scan the horizon for system saving events (SSE). And I’d like for you to help me do it. After you read this article, please make some comments below or send me an email listing your SSEs.
First, the United States suddenly swerves back in the direction of its founding principles. Though I can’t rule out the possibility that our current president will see the error of his ways and return the nation to economic freedom, that does not seem very plausible. What is more plausible is that the people themselves see the error of his (and their) ways, chastened by the results of our ill-conceived experiment in cool socialism, and they elect a president who leads us back towards freedom.
We did it in 1980 and we could do it again. If we repealed Obamacare, Dodd-Frank and the other smaller monstrosities of the legislature and rescinded the unprecedented wave of mandates which has come out of the the rule-making apparatus of the federal government, this turnaround would do an enormous amount of good for the U.S. and the world.
The appointment of a Fed chairman who follows a consumer price rule or (dare we hope?) a gold price rule, would over the long run do even more. Allowing oil and gas entrepreneurs to punch thousands of slender holes into the earth and pump economic-life-giving fuel out of them would help to send industrial growth into overdrive.
As an added bonus, it would severely weaken the world’s commodity tyrants. Ahmadinejad would have to switch his economy to falafel exports. Vladimir Putin would have to give judo lessons to put food on the table. Hugo Chavez would have to apply to the Make-A-Wish Foundation to get the money for his chemo treatments. There is barely a tyrant in the world who would not be downgraded to struggling warlord or even ex-tyrant if we practiced genuine energy freedom in this country.
I know, Newt’s baggage, Mitt’s squishiness, Santorum’s sweater vest, Perry’s inability to complete a comprehensible English, Obama’s war chest…all true. But we’re brainstorming here, and remember there’s no judgment in brainstorming.
Second, the developing world accelerates its movement towards adherence to the basic principles of national prosperity. If America has gotten tired of being America, perhaps others would like to be us. America is now something like the ninth or tenth most free economy in the world. Although most of our betters are also quite small, it doesn’t have to be like that.
Imagine a world in which the third tier moves towards freedom and replaces the second tier. India, South Korea, Brazil, South Africa, Russia, Poland, Thailand, Philippines, Ukraine, Mexico,
Great Britain and many others have enormous upside potential. Some have already been trending towards freedom, some still languish, some have backslidden. With economic freedom teamed up with modern technology, they could leap over the second tier of the developed world. If enough of them do that, the effect could be large enough to positively affect the global system. Look at the great strides made, for example, by Canada and Chile and imagine that effect extended over half a dozen or more larger nations.
Third, a spiritual/cultural/civic renewal in one of the great powers. Something is brewing in Europe at the moment and it smells a little like tea. Yes, I know, Europeans are used to subjugation (and I would remind you once again about no judging in brainstorming), but then again so were Middle Easterners.
What we’ve seen is the power of technology to overcome preference falsification. As my friend Timur Kuran from Duke has pointed out, oppressed societies function on the basis of the big lie. People are afraid to express their real views. Discontent brews beneath the surface and for a long time remains unexpressed for fear of death, deprivation or social expulsion. But sometimes the pattern is broken when a certain critical mass of people tell the truth. This has the potential of creating what Professor Kuran calls ‘an affirmation cascade’.
We saw this occur in a largely constructive form in the Warsaw Pact nations at the end of the Cold War. The agent of the affirmation cascade was largely spiritual in that case (not to shortchange the wave of rock and roll rebellion typified by the late Vaclav Havel). The members of Solidarity and other faith-based movements in Romania, for example, responded to John Paul II and his admonition “Fear not”. God, they believed, is bigger than the state, and being on good terms with Heaven is more important than being on good terms with Moscow.
The Arab spring has Facebook, which lowers the cost of contradicting the regime. The Arab Spring also has a spiritual component composed largely of Islamism which does not have a strong historic element of political liberty. This suggests that revolutions in the Arab world will be easy to start, but hard to transform into liberty-building movements.
But Europe has a heritage of liberty into which it can reenter. What my sources in Europe are telling me is that the Internet is creating an environment in which long-suppressed yearnings for liberty are finding voice. Europe is not like the Middle East, dissenters are not clubbed with clubs in Europe: they are clubbed with slander.
Any who questioned the European project in coercive utopianism during the creation of the Eurozone were vilified in the press as fascistic war-mongers, and they were deprived of any real chance of defending themselves. They kept their skepticism quiet. But now many of them are awaking to the fact that they are not alone. An affirmation cascade is in process. How long it will take to build counter-statist institutions is anybody’s guess.
My basic point is that, in the long run, the world works. Some call that fact spontaneous order. I call it Providence. The source of the arc of progress is a matter of philosophical debate, but the fact of it is a matter of historical record. Humanity gets better.
Now, please help me with this thought experiment. Can you spot the next series of System Saving Events? What’s on your list?
Mr. Bowyer is the author of "The Free Market Capitalists Survival Guide," published by HarperCollins, and a columnist for Forbes.com. This article orginally appeared at Forbes.com.