I’m scared. Or, I’m worried, anyway.
Don’t be scared. Don’t even be worried.
But everything’s going bad at once! United Airlines grounded its entire fleet! The Wall Street Journal website went down, too! China has suspended trading about 45% of its stock market! Even the New York Stock Exchange, the global temple of capitalism, is down! Clearly, it’s time to panic.
OK, let’s take a deep breath and take these one at a time.
First, United. Airline fleets do get grounded, occasionally: it happened to United last month. United is struggling to merge two very different computer systems, and is famously weak when it comes to technology. This glitch was resolved relatively quickly, although it will take a while to deal with the ripple effects from all the delays and cancellations.
Second, the WSJ. This is embarrassing for News Corp, but they actually did a very good job recovering: the site is now back up. It’s not like the WSJ’s website is a crucial business tool like, say, the Bloomberg terminal. (And that went down a couple of months ago for a much longer amount of time.)
Third, Chinese stocks. China has a famously volatile stock market, which has been in serious bubble territory for a while. In an attempt to impose some kind of order on the market, China automatically suspends trading in any stock which rises or falls more than 10% in one day. A month or two ago, that meant stocks regularly being suspended at the beginning of trade for rising too fast. Today, it means stocks being suspended for falling too fast. You can argue about whether these trading halts are a good idea, but they’ve been in place for years, and the system is working like it’s meant to work.
Fourth, the New York Stock Exchange. There are over a dozen different stock exchanges in America, although most people have only heard of two: the NYSE and the Nasdaq. Even if you trade stocks regularly, the chances are you rarely if ever actually trade on the NYSE. Again, there are pros and cons to having so many different exchanges. But one of the pros is that if one exchange goes down for whatever reason, it really doesn’t matter. Not a single stock stopped trading today, and the market as a whole didn’t move at all in reaction to the outage. (Which, officially, was not the result of any kind of hacking, it was an internal technical issue.)
Yeah yeah, I get it, I’m sure there are perfectly reasonable explanations for all of these things. But can’t you see they’re all happening at the same time? What are the chances of that?
Pretty high, actually. Take any four news events from any daily newspaper. What were the chances that all four things would happen on the same day? Remote, right? And yet they all happened.
We live in a world of increasingly complex systems, and one rule of complex systems is that when they fail, they tend to fail visibly and quite catastrophically. In reality, none of these events, with the possible exception of the Chinese stock market crash, is going to have repercussions which last more than a day or so. But when headlines start rhyming with each other in this way, people start to see patterns.
It’s only human to start seeing patterns in the news: in fact, it would be astonishing if we didn’t. But that doesn’t mean the patterns are really there. There’s so much news happening all the time that we’re bound to see patterns whether they’re there or not. Nassim Taleb wrote a great book about this, Fooled By Randomness, whose thesis is right there in the title. Or check out the Wikipedia entry on illusory correlation.
So, I should chill out?