Thursday, April 07, 2011

Joseph Stiglitz on Financial and Nuclear Meltdowns

As part of the Guardian's ongoing debate on nuclear energy, economist Joseph Stiglitz compares recent nuclear and financial meltdowns.
These wizards of finance, it turned out, didn't understand the intricacies of risk, let alone the dangers posed by "fat-tail distributions" – a statistical term for rare events with huge consequences, sometimes called "black swans". Events that were supposed to happen once in a century – or even once in the lifetime of the universe – seemed to happen every 10 years. Worse, not only was the frequency of these events vastly underestimated; so was the astronomical damage they would cause – something like the meltdowns that keep dogging the nuclear industry.
There is another similiarity between financial and nuclear risks: both industries have required government assistance. The banks needed assistance when things went south. But, as I have pointed out, the nuclear industry can't get financing without government guarantees, even when things aren't melting down.

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