

Nassim Taleb (Black Swan) open letter to David Cameron - keven
http://www.guardian.co.uk/commentisfree/2009/aug/16/nassim-nicholas-taleb-economics-cameron

======
jkuria
Taleb needs to find something new to talk about. In his book Fooled By
Randomness, he takes a paragraph and makes it a chapter. Takes a chapter and
makes it a book, talking endlessly about black swans, how people who are
successful are successful because they got lucky and repeating analogy after
analogy to make the same basic point. In this post he makes sweeping
statements about debt being bad, based on wisdom from Babylonian times and
Roman proverbs:

"David, you must counter this complexity by lowering indebtedness. We have
known since Babylonian times that debt is treacherous and allows no room for
mistakes: felix qui nihil debet goes the Roman proverb ("happy is he who owes
nothing")."

He sounds like Ahmedinejan in his letter to former president Bush advising him
to embrace the ways of the prophets of old :)

There are many situations where debt is your friend but like all good things
it can be abused. Common Taleb, find something new to talk about! Black Swan
is so 2002!

~~~
cia_plant
Isn't it better to have one idea that is insightful and correct, than to have
many ideas which are wrong, like most commentators?

~~~
katamole
Not when it keeps being rehashed _ad nauseum_.

~~~
tc
Maybe he intends to keep rehashing it until people _understand_. Good ideas,
it seems, need to be repeated.

~~~
katamole
_Good ideas, it seems, need to be repeated._

Absolutely not. Ideas that are diffuse and unoriginal, on the other hand, are
often repeated because they are uncompelling.

I've read _The Black Swan_ , and although it was entertaining, I didn't feel
like I learned anything of value.

~~~
tc
_Absolutely not._

Bastiat articulated the Broken Window Fallacy in 1850, and here we are 159
years later shredding perfectly good cars to 'create jobs.' It certainly seems
like some good ideas can't be repeated often enough.

------
keven
"Work on building a "robust" society, capable of withstanding errors, in which
the role of finance (hence debt) would be minimal. We want a society in which
people can make mistakes without risk of total collapse. Silicon Valley offers
a good example, where people have the chance to fail fast (and repeatedly)."

~~~
cwan
Impressively scathing of both the Obama and former Bush administrations. I'm
not sure how he would go about implementing some of his ideas since on one
hand he argues against additional regulations and on the other he argues for a
ban certain types of complex financial products (ie who would be the arbiter
of what he calls a return to products that dependend on trial and error?). He
is however a great writer and more importantly, he, even more than Peter
Schiff was right (from an FT article that echoes some of his points in the
letter and in some cases is a bit more specific -
<http://www.fooledbyrandomness.com/tenprinciples.pdf>) :

"Then we will see an economic life closer to our biological environment:
smaller companies, richer ecology, no leverage. A world in which
entrepreneurs, not bankers, take the risks and companies are born and die
every day without making the news."

Having been on both sides of the coin, I do wonder how much those who allocate
the capital (bankers) should make relative to those who generate the ideas and
innovation - but clearly in recent years, it was skewed towards the former.
Lots more from Taleb at his site: <http://www.fooledbyrandomness.com/>

~~~
neilk
Taleb wants financial services to come in two flavors: boring, predictable,
public banking utiliies; and no-safety-net no-bailout risk-taking investment.

He sees current regulation as helping to create the monsters we have now,
where the risk-takers are allowed to play with the money that's supposed to be
stable.

~~~
cwan
"Taleb wants financial services to come in two flavors: boring, predictable,
public banking utiliies; and no-safety-net no-bailout risk-taking investment."

But how do you get there? How do you make sure they don't spin out of control
or even how do you decide which firms to break up and how? (I don't disagree,
I am genuinely interested in learning how he sees it can be implemented and
without new significant regulations no less).

~~~
zupatol
One way to make banks boring and predictable would be to define precisely what
kind of products they are allowed to sell. This sounds like what Taleb would
want, but it don't think it would be good to entirely eliminate innovation.

But if regulators would forbid any product valued by models they don't
understand, it would probably be a good start.

~~~
MaysonL
Taleb has no problem with innovation - as long as the risk of the innovation
is borne by the innovators, or investors putting their own money at risk. The
problem occurs when people bet other people's money, reaping nost of the
rewards when the bet pays off, and incurring little loss when the bet goes
wrong.

------
sh1mmer
Having not read his book, was I the only person annoyed that he used the
phrase "black swan" a dozen times in the first paragraph without qualifying
it?

He could have been saying _"You and your party may be the only hope we have
for a resilient society insulated from negative oranges and in which everyone
has the opportunity to benefit from positive oranges."_ for all the difference
it makes to me.

~~~
dtf
I cringed too - especially at the capitalization. I shall cringe again when
Cameron starts using it. Forced memes like "black swan", "outlier" and
"tipping point" are like little mini-advertisements for their books and their
authors. Getting them into the vocabulary of politicians and business leaders
is the ultimate marketing ploy.

~~~
pbhjpbhj
I honestly don't know what memes you're referring too (nor the books) but
outlier and tipping point have basic meanings without interpretation: tipping
point is a cusp or specifically the point at which the force vector
originating at the centre-of-gravity passes outside the foot of a body causing
it to tip over. Outliers are statistical anomalies or unexpected results that
are usually ignored as if they are insignificant.

Black swans on the other hand are birds with a particular pigment.

Now what are the additional layers of meaning, we see black swans referring to
apparently unlikely events that nevertheless will occur (that's possibly not
the definition given by this guy), but what about the super-definitions for
the others?

------
compay
Unless you're an entrenched partisan, I think it's still a tad too early to
call Obama's economic policies "disastrous" or "calamitous."

~~~
cwan
I'm pretty sure that Taleb isn't a partisan - having also been pretty critical
of Bush/Republicans (though he did point out the Obama administration's
spending is magnitudes larger than his predecessor(s)). In the lead up to the
crisis, Taleb was one of maybe only a couple people who not only forecasted
the crisis but bet right on how it might occur. He used similarly dire
language and was laughed at by many of his detractors. For this reason alone
he shouldn't be so quickly dismissed.

~~~
nostrademons
"For this reason alone he shouldn't be so quickly dismissed."

I'm not sure he'd agree with you. Taleb's books repeatedly stress the
importance of survivorship bias. In any population, they'll be someone
forecasting just about any conceivable event. No matter how unlikely events
turn out to be, _somebody_ is eventually going to be right, and then that
person is lauded as a genius for having forecasted correctly. When really
they've done no such thing; rather, people have just retrospectively picked
out the person who happened to guess right.

I think Taleb would say you shouldn't dismiss him because there's ample
evidence _throughout history_ that he's right, not because he happened to
guess right this time. Whenever debt levels have risen to what they are now,
it's resulted in economic instability and chaotic behavior. It's not just this
century: you can find examples back to Roman times.

------
Estragon
This is ridiculous. The financial crisis was not a "black swan." Many people
saw it coming and prepared accordingly. It was only groupthink and willful
ignorance which kept most people from doing so.

~~~
Rexxar
It's not a black swan for everybody but it's a black swan for a lot of people.

------
dankjaergaard
I think Taleb makes an excellent point with his Black Swan theory. The point
is, that we don't know what will happen. We don't know and governments don't
know. Problem is, governments spend like they know :-)

------
joubert
Before one gets hysterical, consider debt as a function of GDP.

<http://en.wikipedia.org/wiki/File:USDebt.png>
<http://en.wikipedia.org/wiki/United_States_public_debt>

~~~
bwd2
Yeah, but the problem is that the rest of the world is not currently blown to
smithereens and in need of American labor and capital to rebuild it the way it
was in 1945 (not to mention deeply indebted to the United States as well). The
trough of that graph is about the point where Western Europe and Japan managed
to rebuild their economies to the point where they could actually compete
effectively. The United States has no such competitive advantage at this
point.

~~~
joubert
So where is all the US output going?

------
andyjenn
I wonder how Taleb reconciles his views on probability with respect to Cameron
winning the next election in May?

------
movix
Forget the Black Swan, please God just deliver us from Cameron.

Margaret Thatcher when asked what was her greatest political achivement -
'Tony Blair' she replied. Isn't Cameron just a more greasy version of the
slimy Blair, Black Swan spotter or not?

------
adnam
Submarine.

------
drewcrawford
> It is a low-probability, high-impact event that, because of its rarity and
> the instability of the environment, cannot be scientifically evaluated in
> terms of risk and return.

I stopped reading here. The _only_ objective evaluation of economic matters is
in scientific, risk-and-return terms. Anything else is quackery, fear-
mongering, or worse.

A great deal of evil has been done in the last decade or so in the name of
protecting us against horrible things. We are told that much good has come of
it, because nothing horrible has happened. While I'm sure this is partly true,
I wouldn't mind trading a few more horrible things for a little more autonomy.

~~~
oakmac
Black Swan theory isn't about denying science; it's about recognizing the
limits of science.

Taleb's position (and argument in this paper) is that we need to recognize
instances where we don't know the answer instead of making decisions based on
assumptions that we do.

~~~
mynameishere
You can't discount the apocalypse. You just can't. And this pan-phobic concept
"black swan" is just various degrees of unknowable apocalypses that we are
supposed to account for based upon their very unaccountableness. I don't buy
it. Read the tea leaves first, then tell me about swan feathers.

The housing bubble was _BLATANT_. No black swans involved. I remember talking
about it with friends in 2005. No big deal, really.

~~~
frossie
_"The housing bubble was BLATANT. No black swans involved."_

Yes, but what was not blatant was that the housing bubble popping would kill
Lehman Brothers, cause runs on banks and almost bring down the whole world
economy.

Taleb's point is that you can't go around behaving like any system is, to
borrow a phrase "too big to fail" - or rather too cleverly thought
out/regulated to fail. To some extent this is simple engineering. I can test
the resilience of my cluster to network failure by pulling out an ethernet
cable and see what happens - maybe there's a small hiccup while systems fall
back onto local resources, maybe nothing fails over properly and I am hosed
for 12 hours. As I understand Taleb, his argument is that the economic powers
(bankers, traders, politicans) spend too much time trying to figure out how to
prevent network failure, rather than making sure that when the network does go
out, it doesn't take your whole mission down with it. Because, no matter how
well you think you have engineered the system, the chance of your network
going out somehow, sometime is non-zero.

I do agree with the posters that Taleb overstates the cleverness of his own
insight; but unfortunately, in his field, it seems that people really were too
dumb/greedy to grasp this. Irrespective of what you think of his
interpretation of events or the validity of his suggestions (and I too
question them), I think as systems engineers we can appreciate the risk of
designing political and economic systems under the assumption that they can't
fail.

~~~
nazgulnarsil
the problem isn't that people were too dumb/greedy to notice. it's that they
weren't punished for not noticing it. you'd be amazed what a little incentive
does to people's willingness to self educate.

