Wednesday, April 8, 2009

Nassim Taleb as Populist, as Reactionary

Ten principles for a Black Swan-proof world
By Nassim Nicholas Taleb


<> "Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties."

Private equity (financed with leverage) helps small businesses grow and allows exits for entrepreneur (making entrepreneurship more attractive and encouraging innovation).

<> "The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean."

Question: OK, the experts got it wrong, but having amateurs solve the problem hardly seems to be a sensible solution.

Also, note that Mr. Taleb is part of the same establishment. He does not hide this (his credentials are clearly stated at the bottom of the article "The writer is a veteran trader, a distinguished professor at New York University’s Polytechnic Institute and the author of The Black Swan: The Impact of the Highly Improbable") but he does not mention the legion of PhDs in mathematical finance that he "unleashed." Also, "the veteran trader" managed a hedge fund.

"Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control)."

Average people need to invest in financial markets in order to prevent inflation from clawing away at their retirement savings. Also, most people are not business owners, but agents of anothers' business. A middle manager of a paper company in Scranton, PA hardly has control over his destiny, and I'm not sure what his retirement strategy would look like without financial markets.

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