Black Swans in Utah and Florida

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Photo by Shalev Cohen on Unsplash

In 2007, Nassim Nicholas Taleb popularized the term “Black Swan” to describe events that are so implausible that financial modeling and other types of predictive analysis cannot even account for the possibility of their occurring. This leaves governments, businesses, and indeed entire economies susceptible to these most rarest of events, which frequently shift paradigms and destroy old ways of thinking, but often with painful consequences during the intervening period.

Financial crises like the Great Recession and the Dot Com bust as well as historical events like September 11th and the outbreak of the World Wars are classic examples. So too is the rise of the personal computer and internet, which disrupted countless industries and have represented a major inflection point in human history. On a more micro-level, I am sure the customers, employees, and investors in Silicon Valley Bank never anticipated the Black Swan confluence of variables that brought down the 16th largest bank in the country last month. In his book, Taleb also offers the example of Thanksgiving Day being a Black Swan event for a turkey, having had no conception prior as to what was about to take place.

The term “Black Swan” is derived from the fact that for most of human history, it was assumed that all swans were white, that is until black swans were identified in Australia, thus disproving the assumption. Nevermind that Nassim Taleb has developed a bit of a reputation as a false doomsday prognosticator, the concept of Black Swans is still helpful when considering the impossible.

Swans Flapping

Trouble is brewing in two of America’s fastest growing states. In the west, a long-term drought combined with high water usage and faster evaporation due to rising temperatures is drying up one of the defining cornerstones of an ecosystem that supports millions of people not to mention an enormous variety of countless migratory birds and marine life. It is the Great Salt Lake, and it is dying.

Utah and its surrounding states have been areas of significant growth over the past few decades. According to data from the U.S. Census Bureau, on a percentage basis the states of Utah, Arizona, Idaho, and Montana are all in the top ten of fastest growing states in the country. Reasons include the pandemic-related movement of people out of some of the large tech centers on the west coast and other large cities to these more rural (and more affordable) states, but perhaps more importantly it is the fact that Utah has the youngest median age of its residents of any state in the country. When you have a lot of people in their 20s and 30s as Utah does (in large part due to its large Mormon population, which is a demographic marked by large families and high birth rates), you’re going to have a lot of babies, snowballing the population generation by generation. In fact, the median age of Utah residents is just 31.5 years, a full four years clear of the second youngest state, which is Texas at 35.2 years. Most states have a median age of 37.0-40.0 years. Maine, from where I write, tops the list at 45.0 years. New Hampshire and Vermont are the next oldest with median ages of 43.1 and 43.0, respectively.

This growing population in Utah has led to significant new residential and commercial development. This in turn has led to increased water usage. As water has been diverted from many of the rivers and streams that flow into the Great Salt Lake to support all of this new development, water levels are declining in the lake itself.

The situation is now dire. According to a recent study by Brigham Young University:

At 19 feet below its average natural level since 1850, the lake is in uncharted territory. It has lost 73% of its water and 60% of its surface area. Our unsustainable water use is desiccating habitat, exposing toxic dust, and driving salinity to levels incompatible with the lake’s food webs. The lake’s drop has accelerated since 2020, with an average deficit of 1.2 million acre-feet per year. If this loss rate continues, the lake as we know it is on track to disappear in five years.

What would it mean if the Great Salt Lake does, in fact, disappear? The researchers from BYU suggest, “Saline lake loss triggers a long-term cycle of environmental, health, and economic suffering. Without a coordinated rescue, we can expect widespread air and water pollution, numerous Endangered Species Act listings, and declines in agriculture, industry, and overall quality of life.”

That is a Black Swan event. The process as described above would trigger massive migrations of people out of Salt Lake City and the wider geographic area and would lead to the collapse of the regional economy with widespread ripples to the rest of the country. Think of the impact on the real estate market in that area: if the ecosystem and economy around it collapse, what would happen? It’s not hard to guess. Homeowners and businesses would suffer massive losses in a market with a sudden massive reduction in demand.

Unfortunately the solution requires something that we humans are not particularly good at, which is self-control (and a self-limitation of our own resource consumption). On a macro-level, this applies to everyone. Consumption of fossil fuels is undoubtedly raising global temperatures, which is impacting precipitation levels and contributing to rising sea levels. But researchers of the Great Salt Lake are also quick to point out that the driving factor in the collapse of the lake is the diversion of water for others uses from all of the development in that wide geographic radius. To replenish the lake, water consumption by individuals, families, businesses, farms, and others will need to significantly decline, which will require some difficult choices and legal enforcement of water limits in the years to come especially as high birth rates and inward migrations of people (for now) continue to swell the population.

And this is not just happening in Utah with the Great Salt Lake, it is happening with similar water systems throughout the American West as the significant impact from human development on millennias-old ecosystems plays out in rapid time (at least on a historical time scale).

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For some fascinating listening on the situation in the West, check out these two podcast episodes from The Daily via the New York Times:

7 States, 1 River, and an Agonizing Choice (March 2023)

Utah’s “Environmental Nuclear Bomb” (July 2022)

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The Florida Question

If the issue in Utah is not enough water, the problem in Florida is too much of it. Florida is an extremely flat state. The highest point in Florida is Britton Hill, which is a whopping 345 feet high. When water comes in from the shore, there is not much to stop it. With the melting of the polar ice caps pushing sea levels higher worldwide, Florida is particularly vulnerable. According to William Sweet of the National Oceanic and Atmospheric Administration via Newsweek:

By 2050, Florida sea levels, like much of the US, are headed for a 1-foot rise on average…By 2100, Florida is likely to experience at least 2 feet of rise due to emissions to date, but that rise amount could be much higher if emissions and resulting ocean and atmospheric heating continues to increase. Up to 6 feet or so of rise by 2100 cannot be ruled out under a high emissions/heating scenario.

This scenario puts 900,000 Florida homes underwater. What it does for a city like Miami, built almost on top of the ocean, is anyone’s guess. With hurricanes also growing stronger and stronger, the one-two punch of stronger winds and higher sea levels are likely to be even more devastating as time goes by. The University of Florida has referenced the role of climate change and rising seawaters in helping to structurally degrade the Surfside condo prior to its collapse in 2021, which killed 98 people as they slept, calling it “a wake-up call for future coastal developments.”

Black Swan events are generally those that are impossible to predict, but alarm bells have been going off in Florida for years now. And the consequences for Florida residents (and beyond) are already setting in. In the face of larger numbers of more significant hurricanes and other storms plus significant costs from recent storms like Hurricane Ian, private insurers in Florida are set to raise premiums by as much as 60%. The largest property insurer in Florida is embarking on a five-year plan to require all policyholders to add flood insurance policies, which will add thousands of dollars per year of premium costs to many homeowners and businesses. And as I’ve written about before, the national flood insurance program is massively underfunded. In 2017, Congress cancelled $16 Billion in flood insurance debt that had been racked up under the National Flood Insurance Program. I don’t care if you live on an island off the coast of Naples, Florida or in landlocked rural Maine; when Congress cancels $16 billion in debt, it really just means it was paid for by the common taxpayers.

What Comes Next

It is hard to fathom an American future without a thriving Florida or a vibrant and ecologically diverse West. I am not here to preach, but these things are happening now and not in some distant far-off future. Without a reassessment of the ways we do things and a better appreciation of our mutual dependency, the consequences could be stark (and expensive).

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Ben Sprague lives and works in Bangor, Maine as a Senior V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com. Follow Ben on Twitter, Facebook, or Instagram. Opinions and analysis do not represent First National Bank. © Ben Sprague 2023.