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Rediscovering Risk

The sniper murdering at will in the Washington area is a metaphor for the defining characteristic of our new era. It is not terrorism, not an unsteady economy, not the threat of a new war in Iraq -- not even the danger of random assassins. It is risk.

Though risk never vanished, we forgot about it in the 1990s. We effectively abolished large national risks -- though not small private risks -- through a series of public myths. We presumed that we could control our surroundings in ways that would provide a permanent security and allow most of us to retreat into our private worlds. Because this was a fantasy, we have become victims of our own delusions.

Myth number one was that, as the "sole remaining superpower," we were gradually molding the world in our image. After the Cold War, American ideas of democracy and economic freedom emerged triumphant. Global problems were increasingly distant and decreasingly dangerous, because more nations were thinking and acting like us.

A second myth was the "new economy." Economic anxieties declined as the stock market rose and unemployment fell. People felt liberated from traditional economic fears. Politics receded in importance -- it seemed less essential to people's well-being -- and became increasingly regarded as entertainment. For a while, it focused on the constitutional consequences of the president's sex drive.

All this involves, of course, breathtaking generalization. During these years, there were issues that mattered and dangers that intruded. We waged a small war in Kosovo; AIDS continued to advance; crime remained; Asia suffered a financial crisis. But in some ways, the exceptions seemed to confirm the retreat of risk. The air war in Kosovo was fought without American casualties; new drugs combated AIDS; crime declined; and the economy seemed resilient to Asia's crisis.

The disregard of risk had consequences, most clearly for the economy. Pundits and politicians -- specialists in self-righteousness and sarcasm -- are now in a convicting mood. To explain the stock market's collapse and the boom's end, they have many suspects: Alan Greenspan for not "popping" the market "bubble"; corrupt executives and accountants for falsifying financial statements; crooked stock analysts for hyping inept companies. But this witch hunt presents some small truths (corrupt financial statements were a minority) and some untruths (it is hard to see how Greenspan could have popped the bubble without causing a recession). And all the stories conveniently exonerate the public -- "we" weren't to blame.

But we were. The economic blowout resulted mainly from the disregard of risk, as a brilliant paper by Anirvan Banerji of the Economic Cycle Research Institute shows. People began to believe that the business cycle was dying because the Federal Reserve could prevent recessions; that stocks would, except for brief "dips," always rise; that new technologies meant exploding profits and incomes. These beliefs justified otherwise wacky behavior, as Banerji says. It was sensible to buy stocks at exorbitant prices (because the market would always rise), invest wildly in fiber optics and computers (because the potential was unlimited) and borrow heavily (because repayment would be easy without recessions).

Mass gullibility -- not calculated deception or isolated incompetence -- drove the economy to self-defeating excess. We convinced ourselves that up was down and down was up. New technologies increased (not decreased) risk by creating new uncertainties. No one could know which companies would win and which would lose. When ignored, risk grows because people forget prudence and sensible precautions.

But risk is a slippery concept, as we are rediscovering. It cannot always be easily measured, and counteracting it is sometimes impossible or treacherous. For all the postmortems, there is as yet no convincing evidence that we could have prevented Sept. 11. The whole debate about Iraq is ultimately about risk. If inspections fail, is leaving Iraq alone -- and risking that Saddam Hussein develops nuclear weapons -- a greater danger than fighting a preventive war? Without better intelligence, the kind of intelligence about Hussein's capabilities and intentions that we cannot get, the answer must be a calculated gamble.

What's been lost is the artificial certainty of our illusions. Our peace of mind is shot, even if the resulting anxieties exceed -- so far -- the actual threats. We who live in Washington know that the sniper won't kill most of us; still, his presence is frightening. The chief consequence of Sept. 11, 2001, and the economy's setbacks has been to create a mass sense of vulnerability that dwarfs experience. The economy remains prosperous for most people. And all the deaths of Sept. 11 were less than 10 percent of annual highway fatalities.

The threats are magnified in our minds because they were so unexpected. For the same reason, the threats -- real and imagined, from dirty nuclear devices to smallpox -- now dominate the press. It may turn out that today's fables of fear are as exaggerated as yesterday's fables of security. Somehow, we hope to retrieve the sense of control that so recently existed.

We won't. The sniper remains at large. The 1990s were a period of profound self-deception. The business cycle endures. We were not (and are not) reshaping the world in our image. Commercial forces, though they go global, won't soon -- if ever -- overwhelm ethnic, religious and national differences and hatreds. We cannot know the future, but we do know that it will be full of new risks -- some of which we will come to understand and manage and others that, sadly, we won't.