Thoughts on economics and liberty

My notes on Taleb’s books

While on the subject of books, I thought it would be a good idea to also publish my comments made 2 1/2 years ago re: Taleb’s books on FTI’s internal communications.

Fooled by Randomness (by Nassim Nicholas Taleb)

Posted by me on FTI Google Group 12 February 2008: I think the book is relevant to FTI in many ways (also Black Swan). He doesn’t preach the philosophy of freedom directly but points out the gaps in current economic thinking which is often centralist or does not distinguish centralised solutions sufficiently from free market solutions. His analysis of human nature is very similar to the basis on which classical liberalism is founded (e.g. much of the stuff he writes about finds a mention already in the first chapter of my manuscript: “Discovery of Freedom”).

The concept of black swan applies both to downside risks and upside risks (a sand castle suddenly falls with the last additional sand particle; a book or movie or other product such as FTI suddenly gains momentum after its word of mouth reaches critical mass). The thing is to anticipate both the black swans. FTI’s black swan tipping point (ie. point of rapid growth) should come, in my view, once we have 100 serious leaders committed to freedom.

Finally, his book, Black Swan analysed the weaknesses of the centralised US financial system well before most others. The only comparable analyses were from the Austrian school of thought (mises.org), which I believe is on the money in terms of its analysis. Taleb favourably talks about Hayek and, of course, Hayek is the most influential thinker (so far) from the Austrian school.

Check out this page (Taleb’s home page) http://www.fooledbyrandomness.com/imbeciles.htm

The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deemed these events “unlikely”.

Also: http://www.econtalk.org/archives/2007/04/taleb_on_black.html

and (this one is great stuff from the UK Time) http://business.timesonline.co.uk/tol/business/economics/article4022091.ece

The key thing we learn from this book (along with Hayek) is that centralised planners of all sorts are living in a fools paradise. No one can have access to all the local information which influences real life events. Even the best brains make frequent mistakes of statistical inference and we are all fooled by rare events. That is great background reading for people who believe in minimal regulation and justice without needless interference by pompous bureaucrats and politicians who pretend to know everything about the world.

The Black Swan

A few months later I had read The Black Swan and found that it pretty much refers to the same issues that Fooled by Randomness does. Despite Taleb’s conceited (but fast reading) writing style, both books are well worth a read, if only to provide real-life evidence of the folly of macro-economic policy makers who have ABSOLUTELY no clue about the price system and human incentives (and weaknesses). Keynesians and ‘central planners’ such as the central bankers imagine they understand human nature. They don’t. That’s the key message here. If they did understand human nature they would understand their own limitations first.

Sanjeev Sabhlok

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