Another Black Swan?

Another Black Swan? – Is the world a fragile place?

That’s what Nassim Taleb thinks. The former best-selling author and hedge fund manager has written a book in which he divides the world’s structures into three categories—the fragile, the robust, and the anti-fragile. Fragile items are those that are getting along, but break down in times of stress. Robust items can stand up to shocks and stresses without changing. Anti-fragile systems get stronger and more creative when they face new challenges.

Taleb has been thinking about these things for a while. His first two books, Fooled by Randomness and The Black Swan dealt with disasters like hundred-year floods that seem to come around every decade or so, or stock market crashes that feed on themselves. In mathematical parlance, they have “fat tails” in their distribution: highly improbable events that happen more often than they should.

Taleb has now graduated from financial trader and hedge fund manager to self-styled philosopher and lifestyle guru. In his earlier works he focused on the failures of economists and financial managers to fully understand the game that they were playing. His ideas seemed to be validated by the Financial Crisis of 2008. But his rubric of fragile, robust, and anti-fragile is facile and unconvincing.

For example, he claims that drinking a small amount of tap-water from India every year to expose your body to their toxins and germs will make it stronger. But where is the evidence? Are Indian citizens healthier, on average, than Europeans and Americans? Or his anti-fragile advice for modern states is to completely avoid debt, because “when you don’t have debt you don’t care about your reputation, and when you don’t care about your reputation you tend to have a good one.” But this is nonsense. There were times in US history when we had little or no debt and no central bank, and our economy and politics were just as volatile and vitriolic as today.

For every complex problem there is a solution that is simple, intuitive, and wrong. Taleb’s anti-fragility hand-wavings appeal to those looking for simplistic approaches to complex problems. But his self-referential Deep Thoughts remind me of a college sophomore criticizing Plato: too glib for his own good.

Douglas R. Tengdin, CFA
Chief Investment Officer

Follow me on Twitter @GlobalMarketUpd

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