Taleb Pegs Greenspan, Stiglitz as ‘Fragilistas’
According to Nassim Nicholas Taleb, predictions based on statistics would be reliable only if they drew their data from the future as well as the past. Here’s how he illustrates his point:
“A turkey is fed for a thousand days by a butcher; every day confirms to its staff of analysts that butchers love turkeys ‘with increased statistical confidence.’
“The butcher will keep feeding the turkey until a few days before Thanksgiving. Then comes that day when it is really not a very good idea to be a turkey.”
As the author of “The Black Swan” warns in his spellbinding (but also exasperating) new book, “Antifragile: Things That Gain From Disorder,” “absence of evidence (of harm)” should never be confused with “evidence of absence.”
But if prediction is beyond reach, predictability isn’t, since fragility -- the likelihood that something is going to break, whether it’s a crystal cup or the U.S. banking system before 2007 -- is easier to spot.
“Not seeing a tsunami or an economic event coming is excusable; building something fragile to them is not.”
Taleb is famous for having recognized the fragility of the banking system early (“The Black Swan” was published in 2007) and then making a bundle on it when it fell apart. He’s a natural teacher with a gift for metaphor.
In “Antifragile,” he focuses on systems that are not merely resistant to stress (hence “resilient” or “robust”) but in fact profit from it. The human body, for example, gets stronger with the stress of exercise, weaker with indolence.
An antifragile system, he emphasizes, is not at all the same as one from which volatility has been removed:
“Small forest fires periodically cleanse the system of the most flammable material, so this does not have the opportunity to accumulate. Systematically preventing forest fires from taking place ‘to be safe’ makes the big one much worse.
“For similar reasons, stability is not good for the economy: firms become very weak during long periods of steady prosperity devoid of setbacks, and hidden vulnerabilities accumulate silently under the surface.”
The problem with attempts to suppress volatility, he explains, is not only that they backfire:
“Volatility is information. In fact, these systems tend to be too calm and exhibit minimal variability as silent risks accumulate beneath the surface ... Such environments eventually experience massive blowups.”
Though Taleb comes from the world of finance, in explaining how to invest antifragilely, he has produced a revelatory book on a bigger, deeper subject: wise decision making.
He writes so gracefully, with recourse to such clear and common-sensical illustrations, that his ideas (“You are antifragile for a source of volatility if potential gains exceed potential losses”) seem inevitable, almost (once he’s explained them) obvious. He pulls the reader along with the logic of a Socrates.
That is, when he isn’t shooting off his mouth with the bluster of a Donald Trump. Taleb admits that he’s often “angry, dismissive and irascible.” He’s also preening.
He hates economists and he loathes academics. Although I don’t belong to either of those groups, I often had the sense of reading this book with a gob of his spittle on my face.
He names names: Alan Greenspan, Paul Krugman, Joseph Stiglitz, Thomas Friedman, Robert Rubin and Alan Blinder, among others, receive very harsh treatment, some for blindness, others for ethical lapses. They all fit his definition of the “fragilista”: “Someone who causes fragility because he thinks he understands what’s going on.”
“I do not have a political affiliation,” Taleb asserts after blasting both parties, complaining that it’s hard to fit his ideas “within the current U.S. political discourse.” He writes as a philosopher and a prophet, though he’s mainly a prophet in the sense that Cassandra was.
While the 2007-08 banking crisis forms the background to “Antifragile,” he barely addresses ideas for repairing the system beyond a mention of his “governmental golden rule: no borrowing allowed, forced fiscal balance” and a footnote in which he declares that “hedge funds need to be unregulated and banks nationalized.”
Mm-hm. No wonder he doesn’t have a political affiliation.
The notion of reaping advantage from fragility may be eye- opening to individual investors, and I dearly hope I’ll have the clarity of mind to draw on Taleb’s ideas when I have big decisions to make, financial or otherwise, in the future.
But while in time they may be widely influential, as long as he offers no practical way to put them into large-scale practice in the financial system, they remain -- and I use the term advisedly -- academic.
To contact the writer on the story: Craig Seligman at firstname.lastname@example.org.