Lessons learnt from Iceland's volcano

This is an article written by Matthew Lynn. We should be alarmed for events coming out of nowhere.

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Last year, the financial crisis have shaken the world economy. Banks collapsed, institutions as well as individuals bankrupted. Lately, volcano in Iceland is sprwing ash into the sky and caused the European continent paralysis.

Both happenings are strangely similar. They are "black swan"(in financial saying) events. Unexpected developments coming out of nowhere, for which no one has any kind of contingency plan. And they are a warning about the fragility of the modern economy.

Our economy is kept in motion by fleets of jetliners and a network of airports. The chaos of air transportation may teach us that our economy needs to be more grounded, both metaphorically and literally.

Globalisation has made the world seem a very small place. When the technology breaks down, it is a long way from A to B and you suddenly realise the distance between places still counts for a lot. We need to prepare for the unexpected. We thought hedge funds might blow up the banks, instead some dull-looking mortgages did. We thought terrorists might spread chaos through the airline system, it turned out that ash from volcano did that job.
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