Introduction: clarifying terms

We live in a period of high uncertainty, some would say exceptional uncertainty. John Kenneth Galbraith has called it the “Age of Uncertainty.” The purpose of this chapter is to assess the risks, or one might better say, the threats, to the international economic system that arise from this uncertainty, and the suitability of present institutional arrangements to deal with those risks.

By “risk” I mean the possibility of an unforeseen development that influences our welfare. Risk as used here bears little relationship to the risk involved in games of chance, where the outcome is uncertain before the dice are rolled, but the nature of the outcomes is understood and their relative likelihood, or probability, is known. One might say there is statistical certainty in games of chance. In sharp contrast, the principal effort to deal with risk in social systems, as with hang gliding, is to try to influence the probabilities.

If the development is foreseen, it can be allowed for and is not a risk. For the most part, we will be dealing with unforeseen adverse developments. Favorable developments are generally of less concern, although in some cases, if they are mishandled, they may influence the future adversely, as when a firm finds itself with demand for its products that it cannot satisfy and thereby loses customers, or a country discovers oil, which creates public expectations it cannot satisfy.