June 22, 2011 (Bloomberg) -- Complacency is baked into our species. We can’t resist thinking that recent experience defines the future. Give us a run of good luck, and we are apt to turn that into an implicit expectation that our luck will continue -- even that we are entitled to it.
This kind of thinking was instrumental in the run-up to the financial crash of 2008. Too many private and public institutions assumed that an extraordinary run in prosperity, particularly in the real estate market, was just normal. It didn’t occur to them that things could go so wrong. Even when token stress testing or risk assessment was done, it largely excluded the possibility of a bad shock or a protracted slump. Risk wasn’t systematically measured; it was ignored.
It’s easy to write this off to greed or foolishness on the part of Wall Street. But the truth is, our entire civilization rests on a foundation just as shaky. We assume that the very Earth is static and will always be as it is now, or as we remember it.
Yet geophysics tells us that is emphatically not the case. Bad things happen. In the past couple of years alone, we have witnessed a litany of horrific natural disasters. Early last year, Haiti, already one of the most impoverished places in the world, was slammed by a magnitude 7 earthquake that caused hundreds of thousands of deaths, both directly and as the result of a cholera epidemic that occurred 10 months later during the recovery effort.