Tag Archives: Nassim Nicholas Taleb

More Tooleb Nonsense Debunked

Nassim Nicholas Tooleb, the angry flâneur who blocks and insults people on Twitter, continues to demonstrate being the intellectual-yet-idiot that he is, in a recent Medium post Inequality and Skin in the Game:

The author Joan Williams, in an insightful article, explains that the working class is impressed by the rich, as role models. Michèle Lamont, the author of The Dignity of Working Men, whom she cites, did a systematic interview of blue collar Americans and found present a resentment of professionals but, unexpectedly, not of the rich.

It is safe to accept that the American public –actually all public –despise people who make a lot of money on a salary, or, rather, salarymen who make a lot of money. This is indeed generalized to other countries: a few years ago the Swiss, of all people almost voted a law capping salaries of managers . But the same Swiss hold rich entrepreneurs, and people who have derived their celebrity by other means, in some respect.[ii]

Tooleb just pulls this out of his butt, like he does for most of the stuff he writes. This is wrong for so many reasons:

1. The ‘American public’ includes salaried individuals. Its like those liberals who say they want unity but then attack the rich.

2. 60% of American workers are ‘white collar’, and hence typically earn a salary instead of a wage. So by Tooleb’s logic that would mean a lot of workers despise their own success.

3. Again with the overgeneralizing. It is really ‘all’..did he literally poll every single person? The part about Michèle Lamont and Joan Williams of HBR is unconvincing, because Tooleb doesn’t cite percentages or an actual study. Here is the Joan Williams HBR article: https://hbr.org/2016/11/what-so-many-people-dont-get-about-the-u-s-working-class:

Michèle Lamont, in The Dignity of Working Men, also found resentment of professionals — but not of the rich. “[I] can’t knock anyone for succeeding,” a laborer told her. “There’s a lot of people out there who are wealthy and I’m sure they worked darned hard for every cent they have,” chimed in a receiving clerk. Why the difference?

So Tooleb links to an article that mentions a book, The Dignity of Working Men, which gives a single anecdotal example of supposed resentment, yet Tooleb generalizes this to mean ‘all’. The rest of the Joan Williams article is about the 2016 election and Hillary.

4. Tooleb refutes his own argument by mentioning the Swiss vote, writing “This is indeed generalized to other countries: a few years ago the Swiss, of all people almost voted a law capping salaries of managers.” If such a generalization were true, wouldn’t the vote have passed unanimously?

Here are the actual results of the vote:

Swiss voters on Sunday decisively rejected a proposal to cap “fat cat” pay, in a ground-breaking referendum on the issue.

Final results showed that votes against carried the day by 65.3% to 34.7% in favour. David Roth, the president of Switzerland’s Young Socialists and the referendum’s leading sponsor, said: “We’re disappointed [we] lost today.”

So in Tooleb’s distorted world, 35% = ‘all public’. Close enough. lol What a clown. And it was socialists who backed the referendum, further evidence Tooleb is not the libertarian or anarcho capitalist many think he is but rather a liberal or socialist pretending to be one. Even in 2011, when I began writing articles critical of Tooleb, I suspected he was a liberal, and this further confirms it.

5. Many workers aspire to be promoted and to move up the ‘corporate ladder’ to become managers. Why else are there so many books, articles, websites, and seminars about getting raises and promotions?

In addition, someone without skin in the game –say a corporate executive with upside and no financial downside (the type to speak clearly in meetings) –is paid according to some metrics that do not necessarily reflect the health of the company; these (as we saw in Chapter x) he can manipulate, hide risks, get the bonus, then retire (or go to another company) and blame his successor for the subsequent results.

Execs are paid more because they have a bigger responsibility. Execs have skin in the game in the form of stock and stock options. Incompetence is the job of the board of directors to determine, with appropriate action taken if necessary. In some cases such as Enron and Wolrdcom, this fails, but such extensive fraud is uncommon, partially because of severe criminal penalties. Tooleb wants to take this further by turning all executives into civil servants and having the government regulate compensation, which is what Obama tried to do in 2009 with the financial sector. He’s advocating a bigger regulatory role for the federal government but without explicitly saying so.

Continuing on, he writes:

You do not create dynamic equality just by raising the level of those at the bottom, but rather by making the rich rotate –or by forcing people to incur the possibility of creating an opening.

The way to make society more equal is by forcing (through skin in the game) the rich to be subjected to the risk of exiting from the one percent
Or, more mathematically

He subscribes to the belief in ‘finite wealth’, that in order for someone to become wealthy an existing wealthy person must lose his spot, which is one of the most common misconceptions held by people who are naive about economics. It never occurs to him that the total wealth can rise, as has been the trend forever, and hence more people can become wealthy. Liberals want to make the pie equal; conservatives seek to enlarge it.

So instead of ‘spread the wealth’ as Sanders would say, it’s ‘rotate the wealth’. Again, diversion and subterfuge. He wants rich people to forfeit or squander their money on stupid, risky endeavors in order to have ‘skin in the game’.

Also, where is the incentive to create personal wealth if it’s going to go away just as quickly as it came? One of the reasons people accumulate wealth is for peace of mind and stability for both themselves and their families.

Our condition here is stronger than mere income mobility. Mobility means that someone can become rich. The no absorbing barrier condition means that someone who is rich should never be certain to stay rich.

Wrong again. People are getting rich all the time, everyday. Of the Forbes 400 list, 70% are self-made:

Yet Forbes said that wealth in America has become far more meritocratic over time. It said that in 1984, “less than half of those on The Forbes 400 were self-made; today, 69 percent of the 400 created their own fortunes.”

Look at Facebook…in the past decade it has created many millionaires and some billionaires. One example is Jeffrey J. Rothschild, an early Facebook employee:

Rothschild started working for Facebook in 2005.[4] He was the oldest person working for Facebook at the time.[4] He became Facebook’s vice president of infrastructure software.[4] In 2012, he owned 18 million Facebook shares.[4]

In 2015, he was worth an estimated US$1.67 billion.[1] He serves on the board of trust of his alma mater, Vanderbilt University.[12] Rothschild is married, and he has three children.[1] He resides in Palo Alto, California.[12]

With recent successes of Uber, Snapchat, Airbnb, Whatsapp, and Tesla, stories like these are becoming increasingly common. Since 2002, the number of billionaires and total wealth has surged, thanks to the information technology industry and other factors:

Tooleb writes:

For instance, only ten percent of the wealthiest five hundred American people or dynasties were so thirty years ago; more than sixty percent of those on the French list were heirs and a third of the richest Europeans were the richest centuries ago. In Florence, it was just revealed that things are really even worse: the same handful of families have kept the wealth for five centuries.[iii]

Large fortunes tend to dissolve, mainly due to marriage, business failure and mismanagement, divorce, and offspring, eroding the fortune over many generations. A family surname (such as Kennedy, Rockefeller, or Rothschild) may be collectively rich, but the wealth per person becomes very diluted as the family grows and splits over many generations. In fact, I don’t think there are any Kennedy, Rockefeller, or Rothschild decedents on the Forbes 400 list. The Waltons are the only familial clan on the list.

Again, it doesn’t matter if rich people remain rich, because total global wealth is growing, as well as rising standards of living.

Tooleb is lauded as some sort of ‘genius’. On Twitter, he fortresses himself in esoteric-sounding philosophical babble and screenshots mathematics that he passes off as his or as original, creating an aura of intellectual impenetrability around him, but when you actually read his stuff, line by line as I have done, most of the time he has no idea what he is talking about. He’s like a Potemkin intellectual, where there is no substance behind the Twitter facade.

Nassim Tooleb Loses His Temper Again

Nassim Tooleb lost his temper again. He began by asking the difference between democracy and populism, but only asking for ‘rigorous’ explanations, which is kinda difficult given the 140-character restriction of Twitter. But people tried anyway.

Daniel Drezner responded by suggesting that Tooleb read up on the matter, which is good advice, to which Tooleb responded like the bully he is by calling him a fucking idiot:

Tooleb is too thin-skinned to take advice and insults and or blocks anyone whom he disagrees with. Many months ago Tooleb blocked me after I (with as much patience and kindness I could possibly convey in 140 characters) disagreed with one of his tweets. He also has a habit of misconstruing and twisting arguments.

But to answer his original tweet, democracy is a political system (albeit, a very flawed one). Populism is an ideology.

If anyone deserves to be banned from Twitter for being an asshole, it’s him. Anyone who trolls Tooleb and gets him mad, even if they are a SJW, is a friend in my book.

Analysis of Mark Spitznagel Tail Hedging, Part 2

Part 1

From what I can glean from the links provided in part 1, Universa allocates approximately 1% of its capital on OTM (out-of-money) S&P 500 puts that expire in 70-90 days and have a ‘delta’ of .01 (at-the-money puts typically have a delta of .50). These are puts that are struck at strike prices 30-35% below the present market price of the S&P 500 (which is why they have such a small delta) and are rolled over every 30 or so days. This means after 30 days the bought puts are sold and replaced with newer ones to keep the running time until expiration around 60-90 days for all the puts. The rest of the capital is invested in the S&P 500. Following this procedure purportedly allows investors to ‘capture the upside’ of the market but also ‘minimize the downside’, as per the video and Taleb’s posts.

Assume $200k of initial capital. The SPX index (a proxy for the S&P 500) is at 2150 as of 10/4/2016. The 1500 puts (30% out of money) that expire in 87 days are valued at 1.15 ($115 per contract). 1% of $200k means we have to buy 17 of these puts. All calculations are done with the erieri.com Black Scholes calculator.

To calibrate the actual option prices with the results from the calculator, I used the following variables:

volatility =.325

time= .24 of a year (about 85 days)

Risk-Free Interest Rate: .01

Option Strike Price: 1500

The result is 1.12, which is close enough to the actual value of 1.15 (this means 18 contracts are purchased instead of 17)

Unfortunately, Mark Spitznagel doesn’t say when it sells the puts (probably because that information is proprietary), but I will assume the puts are sold if the market falls at least 10%. If they are sold too soon, it defeats the purpose of having them as a hedging instrument. Wait too long and they may still expire worthless despite the market falling a lot.

To simulate the passage of 30 days, I plug time = .16 into the calculator. Recalculating yields .19, for a loss of $93 per contract, or about $1,700 total for the month for all 18 contracts. For an entire year, assuring the market is flat and doesn’t crash, the total loss is around $20,000, or about 10% of the portfolio. This means the tail hedging portfolio will lag the S&P 500 by about 10% a year provided the market doesn’t crash. Consider the period between Jan 2003 to Jan 2007, in which there were no 10% crashes and the S&P 500 gained 60% (excluding dividends). The tail hedging portfolio wold have only gained 5%, which is pretty bad.

But what if the market crashes? Consider three recent sell-offs, denoted by (1),(2),(3), below:

Using historical option data simulated during the August 2015 crash, in which the S&P 500 fell 10% in a two-week period (1), the gains would have been anywhere from 30-50x, depending on the choice of strike per the method above. That means, assuming you sold the puts at the best price when the market was exactly down 10%, the $2,000 would have become $80,000. That makes up for four losing years. Again, that’s assuming you sell at the best time and price and don’t wait any longer, as the puts did eventually expire worthless.

I used Think or Swim to get the old put option data on SPY (an ETF proxy for S&P 500 that is 1/10 the value) before and after the August 2015 crash, as per the instruction above. As you can see, some of these tiny options gained 40x, so under some circumstances the potential profits are huge:

Sounds pretty good. So it must have worked equally well in Jan 2016 (2) when the market also fell 10%?

(here I’m using the SPX contract, which is 10x SPY)

Not quite. Actually, not even close. They only gained 3-4x, a far cry from 30-40x. What happened? The August 2015 crash pushed volatility very high, and for reasons that are mathematically too complicated to explain, significantly reducing the ‘explosiveness’ of the tiny puts. Second, the Jan 2016 crash was more protracted than the August 2015 crash (a month instead of a week). The hedge would have made $6,000, only enough to offset some of the 10% loss of the S&P 500 ($20,000 loss on the $200,000 portfolio), and this is assuming you don’t hold on to the puts any longer, because they too expired worthless.

To give an example of why tail hedging usually doesn’t work that well under the vast majority of circumstances, consider the September 2016 ‘mini crash’ in which the S&P 500 fell 2.5% in a single day:

On Sep. 8th, the day of the crash, the puts double in value, turning the $2,000 into $4,000. That isn’t enough, because the $200,000 lost $5,000, so you’re $3,000 short (assuming you sell the puts, but we cannot, because the 10% threshold hasn’t been triggered). But here is the worst part…on Sep. 26, the market is still 1.5% lower, but the puts have decayed so much that they have fallen from the purchase price, meaning you not only lost money on the S&P 500 but also lost money on the hedge, too. The hedge actually backfired.


In conclusion, tail hedging, assuming perfect conditions, can yield enormous profits to compensate for many smaller losing trades, but in most instances it’s a significant drain if a crash does not occur under the optimal circumstances. Using Spitznagel’s OTM put strategy, unless the volatility before the crash if very low and or the crash is very deep and sudden, the returns will be insufficient as a hedge, and may actually cost money (meaning you lose on both the hedge and the decline of the underlying index, as I showed above).

The tail hedging method would have failed between 1990-1996, a period when volatility was very low but the market didn’t crash. It would have scored a win during the small crash of 1997, which was sudden, but volatility spiked afterward and would remain high until 2004. The high volatility during the late 90′s and 2000′s would have prevented the method (like we saw in Jan 2016 above) from scoring any big wins during the collapse of the dotcom bubble between 2000-2003. Although 911 would have yielded a good profit, the volatility preceding the attacks was still too high. It would have also failed during the 2003-2007 bull market.

Although tail hedging can yield abnormally high returns during crashes under perfect conditions, after factoring years of decay in the absence of crashes, the returns may be much worse than the S&P 500. The crash of 2008 was unique in that most of the losses occurred in just a few months (October and September), and the volatility was very low preceding the crash, but had 2008 crash either never happened or was more protracted (like the 2000-2003 bear market, which took three years to bottom instead of one), the returns using tail hedging would have been far worse.

Part of the appeal of tail hedging, despite worse returns, may have to do with two common cognitive biases: loss aversion (which means that a loss results in asymmetrically more discomfort than the pleasure from a gain) and recency bias (the tendency to overestimate the likelihood of rare events, because of a recent occurrence. The market crash and recession of 2008 is still fresh in people’s minds, but they don’t realize, historically speaking, that such events are very rare).

Often you hear the argument that tail hedging is profitable because stock returns don’t obey the normal distribution and therefore put options are ‘cheap’. This reasoning is wrong because put options have a very steep ‘skew’ that arises from a stochastic volatility model with ‘jumps’, a significantly more complicated model than the normal distribution model that underpins the Black Scholes equation. The skew is the result of crashes being priced in advanced into the puts, resulting in puts having much higher implied volatilities than predicted by Black Scholes. This is especially so after recent crashes, like I showed in Jan 2016 above. These expensive puts also decay very quickly, often producing rapid losses for anyone who buys them, and only very seldom producing a positive return for buyers. The overwhelming evidence suggests people overpay for put protection, not underpay.

Does Tail Hedging Work? It Depends

Lately there has been a lot of discussion about finance, and people want to know how to ‘protect themselves’ in a market crash, so as to be expected buzzwords such as ‘black swans’, ‘fat tails’, and ‘tail hedging’ are mentioned, topics popularized by Nassim Taleb, who became something of a legend akin to the 21st. century equivalent of Jesse Livermore for supposedly making a lot of money in the 2008 stock market crash using ‘black swan’ trading methods such as buying out of money put options, which his firm, Universa, allegedly sold for a huge profit as the market plunged.

Although Taleb is the pitchman, who constantly rials against journalists (who he calls ‘journos’) and the ‘financial media’ yet is an inveterate self-promoter on the media circuit, the founder and ‘brains’ behind Universa is quantitative analyst Mark Spitznagel, who founded Universa in 2007.

The problem is most people, including experts, seldom question anything told to them…they just assume on face value that Taleb and Spitznagel have somehow found the holy grail of risk management through this ‘tail hedging’ strategy that few, if anyone, has actually bothered to verify. Just like Madoff’s fund, for decades everyone – just save one person, Marco Kopolos, who actually crunched the numbers and determined that purposed returns were impossible – just assumed Madoff was legit. I’m not saying Universa is a fraud, but very few people actually bother investigating anything they read and just blindly accept things as told.

Here is Taleb on Yahoo Finance conversing with those ‘journos’ he so despises to promote tail hedging:

Yahoo Finance: You’re the Distinguished Scientific Advisor at the hedge fund of your longtime friend Mark Spitznagel, Universa Investments, a pioneer in tail risk hedging for institutional clients. What is tail risk hedging?

The idea at Universa is protecting clients against extreme events, those that are rare and traumatic and can threaten their survival. Counter-intuitively, by minimizing clients’ vulnerability to extreme losses through things like put options, they tend to do much better over the long run.

The whole ‘article’ is pretty much a sales pitch for Universa.

Occasionally Spitznagel will don the role of pitchman, extolling the efficacy of tail hedging, predictably with plugs for Universa too. Here is one of his articles: Capital asset pricing mistakes, in which he argues that Harry Markowitz’s efficient frontier, the cornerstone of CAPM is wrong, and that the strategy of tail hedging yields superior risk adjusted returns. And here is a video sales pitch from Universa, too, where Spitznagel describes how ‘allocating a tiny sliver of the portfolio to tail hedging generates more returns for less risk’. Here is some more information about tail hedging Worried About A Stock Market Crash? Here’s How You Can ‘Tail Hedge’ Your Portfolio.

Fro the pionline article, he writes:

Being conservative, let’s assume that the tail-hedged portfolio has similar risk properties as the benchmark portfolio. Using Figure 3, we can see that not only does the tail-hedged portfolio perform better than our benchmark (since the inclusion of options in the portfolio clips the fat left tail and allows us to take more equity risk and invest in the S&P 500), it also has a roughly 7% annualized outperformance over the S&P 500 itself.

And the performance of tail hedging compared to other strategies:

16% annual returns and 3.5% percent variance seems too good to be true.

Neither on the Universa website or anywhere else does he break down the returns by year, but instead takes the average return. This suggests only one or two years out of a dozen or more accounted for the abnormally high returns, indicating that mean is higher than the median (a lot of losing or flat years and may be one or two big winners that boosts the entire average).

Also his fund was launched in 2007, a year before the biggest financial meltdown since the Great Depression, so the timing couldn’t have been better.

Part 2

Tooleb becomes self-aware, part 2

It looks like Nassim Nicholas Tooleb is becoming self-aware again in a recent Medium post appropriately titled The Intellectual Yet Idiot (in which he expands on his original Facebook post). Just replace all instances of ‘IYI’ with ‘Tooleb’ and it’s a perfect description of him.

For those who think Tooleb is part of the alt-right, he’s not. He’s not even a conservative but rather a liberal pretending to be a libertarian, who frequently attacks the rich and corporations:

What we generally call participation in the political process, he calls by two distinct designations: “democracy” when it fits the IYI, and “populism” when the plebeians dare voting in a way that contradicts his preferences. While rich people believe in one tax dollar one vote, more humanistic ones in one man one vote, Monsanto in one lobbyist one vote, the IYI believes in one Ivy League degree one-vote, with some equivalence for foreign elite schools, and PhDs as these are needed in the club.

Tooleb doesn’t oppose democracy and populism; rather he believes it’s been corrupted by the rich and corporations, as well as ivy tower elites. He still holds on to the romanticism of the democratic political process.

Here is Tooleb praising India’s democracy while calling Saudia Arabia a ‘very fragile country’:

I know that Saudi Arabia is a very, very fragile country, probably the one that’s most fragile for a lot of reasons. They are more robust to oil revenue to Iran and other countries but not other things. They say oil is x percent of GDP, around 50% but the rest is also linked to oil. It is untenable. You see here in India you do not have governance problems, it is a democracy and that makes you a lot more robust than other countries, definitely more robust than China.

In waging class warfare, pitting the makers against the takers, Tooleb is no different than Bernie ‘wealth spreader’ Sanders.

Tooleb writes:

The IYI has been wrong, historically, on Stalinism, Maoism, GMOs, Iraq, Libya, Syria, lobotomies, urban planning, carbohydrates, gym machines, linear regression, Gaussianism, Salafism, housing projects, and p-values. But he is convinced that his current position is right.

But then he drags Pinker again through the mud as an ‘IYI’:

The IYI is member of a club to get traveling privileges; if social scientist he uses statistics without knowing how they are derived (like Steven Pinker and psycholophasters in general);

This continues in Tooleb’s tradition of attacking experts who are smarter than him (Pinker, Dawkins, etc.).

Tooleb is so blinded by his dislike of Pinker that he fails to see that Pinker, despite being an ‘IYI’, is actually very critical of communism, writing in his book The Better Angels of Our Nature that “…communism was a major force for violence for more than 100 years, because it was built into its ideology.”

As Pinker astutely points out, communism is violent because violence is required in order to achieve and enforce ‘equal outcomes’, in agreement with the blank slate worldview of humanity that mandates equal outcomes, as well as the nationalization of private property. But equality goes against human nature (rich, successful people, including even Hollywood liberals who vote democratic, don’t voluntarily want to forfeit the fruits of their labor to the state) and the ‘natural order’ (productive, intelligent economically rising above the less intelligent, unproductive), necessitating violence to get it.

Here is something else that’s pretty funny, from Nassim Taleb Talks Antifragile, Libertarianism, and Capitalism’s Genius for Failure, in which he says:

Taleb has called New York Times columnist Thomas Friedman “vile and harmful” and coined the phrase the “Stiglitz Syndrome” after Nobel-prize winning economist Joseph Stiglitz, which refers to the phenomenon of public intellectuals being held utterly unaccountable for their bad predictions. Paul Krugman and Paul Samuelson are among Taleb’s other Nobel laureate bête noires.

Hmmm…speaking of unaccountably, why hasn’t Tooleb owned up to his own wrong 2009 predictions of hyperinflation?

Unlike last year’s sudden market implosion, inflation isn’t an unimaginable event that few currently anticipate. In fact, many fear inflation right now amid government efforts to goose the economy. Universa’s bet, however, is that inflation will reach levels few expect.

What a spert he is. I was one of the few bloggers who was correct about almost everything since 2011, correctly predicting a continuation of the bull market and low inflation.

If you raise this issue on Tooleb’s Twitter, or question any of his beliefs, he will block you.

Nicholas Nassim Taleb Becomes Self-Aware

Nicholas Nassim Tooleb holds a mirror to himself for some much needed self-reflection:

Intellectual Yet Idiot: semi-erudite bureaucrat who thinks he is an erudite; pathologizes others for doing things he doesn’t understand not realizing it is his understanding that may be limited; imparts normative ideas to others: thinks people should act according to their best interests *and* he knows their interests, particularly if they are uneducated “red necks” or English non-crisp-vowel class.
More socially: subscribes to the New Yorker; never curses on twitter; speaks of “equality of races” and “economic equality” but never went out drinking with a minority cab driver; has considered voting for Tony Blair; has attended more than 1 TEDx talks and watched more than 2 TED talks; will vote for Hillary Monsanto-Malmaison because she seems electable; has The Black Swan on his shelves but mistakes absence of evidence for evidence of absence; is member of a club to get traveling privileges; if social scientist uses statistics without knowing how they are derived; when in the UK goes to literary festivals; drinks red wine with steak (never white); used to believe that fat was harmful and has now completely reversed; takes statins because his doctor told him so; fails to understand ergodicity and when explained forgets about it soon later; doesn’t use Yiddish words; studies grammar before speaking a language; has a cousin who worked with someone who knows the Queen; has never read Frederic Dard, Michael Oakeshot, John Gray, or Joseph De Maistre; has never gotten drunk with Russians and went breaking glasses; doesn’t know the difference between Hecate and Hecuba; doesn’t know that there is no difference between “pseudointellectual” and “intellectual”; has mentioned quantum mechanics at least twice in the past 5 years; knows at any point in time what his words or actions are doing to his reputation.
But a much easier marker: doesn’t deadlift.

The first step in not being a semi-intellectual blowhard is to recognize you are one, so this I think is an improvement on Taleb’s part, in recognizing his own problem.

has mentioned quantum mechanics at least twice in the past 5 years

I guess that would include most physicists, but again, Taleb is smarter than them, becozz black swans…

Intellectual Yet Idiot: semi-erudite bureaucrat who thinks he is an erudite

…and also creates strawmen and misconstructions of experts, bullies experts and scientists who are smarter and or more knowledgeable than him, sells overpriced and useless ‘mini certificates’, and is thin-skinned and cannot take criticism.

Here’s another example of Tooleb pseudo-intellectual sophistry:

Did it ever occur to him that it’s possible to be both worthy of praise and be praised?

Here is Taleb showing his liberal colors again, retweeting in approval something about GMOs and Bernie Sanders, yet many on the ‘alt right’ think he (Taleb) is one of them:

Michael Oakeshot, John Gray, or Joseph De Maistre;

In regard to Joseph de Maistre, an important counter-enlightenment thinker:

Maistre, considered by Masseau and Didier[6] to have been a key figure of what they termed as the Counter-Enlightenment, saw monarchy both as a divinely sanctioned institution and as the only stable form of government.[7] He called for the restoration of the House of Bourbon to the throne of France and argued that the Pope should have ultimate authority in temporal matters. Maistre also claimed that it was the rationalist rejection of Christianity which was directly responsible for the disorder and bloodshed which followed the French Revolution of 1789.[8][9]

Agree with this part:

speaks of “equality of races” and “economic equality”

As someone how identifies with NRx, I agree to some extent with this, but an augment against democracy, racial blindness, welfare liberalism, and egalitarianism, is not necessarily an endorsement of an absolutist Catholic monarchy or an endorsement of Taleb. Some (such as myself) favor something different (maybe Protestantism, secession, turning back the dial to before the 60′s, or a non-theistic techno-oligarchy of sorts), but find common ground in opposing democracy and egalitarianism. It’s possible to have technological progress, while eschewing democracy, as in the case of Thiel and others. But one problem I have with Taleb, and to some extent with NRx and the ‘alt right’, is the tendency to advocate populist ideas (such as being ‘anti-fed’, anti-establishment, anti-academia, anti-centralization, anti-Wall St., anti-globalization, pro-Brexit, etc.) while being anti-democracy and advocating elitism. It’s kinda like copying the Sanders/OWS economic platform, the Ron Paul foreign policy platform, and calling yourself ‘right-wing’ or elitist. You cannot have it both ways. Or maybe the hope is that the left’s ‘version’ of elitism will be replaced by a right-wing version of elitism, or something like that. Another problem with Catholicism is whole the ‘sanctity of life’ thing, which proscribes programs that could be beneficial like eugenics.

I lean neoconservative on economics and foreign policy, while opposing things like democracy, egalitarianism, and feminism. Neoconservatism is shamelessly elitist, logically consistent, consequentialist, and right-wing. The neocon brand was hurt by ‘cuckservative’ and the aftermath of the Bush administration, but many neocons and ‘alt right’ agree on the threat to civilization posed by Islam, for example.

Real World Risk Institute

In the mid 2000′s after a string of losses, Nassim Nicholas Tooleb closed his fund, Empirica Capital, to become a writer specializing in repacking otherwise prosaic ideas. Despite Taleb’s fame and all the media attention about ‘black swans’, Tooleb’s CV is unimpressive. All his papers are sparse, lacking in rigor, and published in low-impact journals or on pre-print archives, not top finance or economic journals.

As many are aware, his marketing strategy is create strawmen and misconstructions of experts and the literature on finance, and in tearing down these strawmen he makes himself look smarter in front of his followers, and thus can sell books and speaking engagements to those who take his word on his supposed expertise and foresight. Tearing down strawmen is a strategy also used by Neil Degrasse Tyson and Bill Nye, neither of whom will ever engage the leading scientists on global warming skepticism, because strawmen, by definition, don’t fight back.

Further capitalizing on his ‘black swan’ fame, in addition to books, speaking, and consultancy gigs, all over Twitter Tooleb is now promoting something called the “Real World Risk Institute, LLC” offering “MINI-CERTIFICATES IN REAL WORLD RISK RISK TAKING”. From the website (which looks like it was put together on Geocities):

2 risk takers, former full-time traders (with combined experience of more than half a century)
2 persons known to have an attitude problem
6 Phds (quant/math), 4 businessmen/quants/advisors to hedge funds, 2 owners of analytics firms (competing with one another)
2 UHNWI (Ultra High Net Worth Individuals)
4 persons who specialize in tail events in both theory and real-life practice
More than 25 books, and around 500 scholarly publications. We dominate the subject of fat tails in both theory and practice
4 are probabilists with deep enough a knowledge of probability to respect practice and explain things with concepts and pictures

This ‘certificate’ is only $7,000 for a 5-day course, which works out to around to around $1,400/day.

The obvious question is: If Tooleb’s ‘antifragile’ strategies are so effective, why are aren’t these quants, advisors, ‘risk takers’, and ‘former traders’ actually trading instead of giving lectures? If top traders can make tens of millions, even billions of dollars, to sell such information for $20 (a book) or $7,000 (a seminar) makes no economic sense – unless it doesn’t actually work. Second, as a consequence of promoting this method, if everyone starts buying volatility instead of selling it, it makes buying volatility less profitable because prices become too high – specifically, the skew becomes too steep, which has already happened dramatically since 2013. Although ‘antifragile’ strategies may have big payoffs, the long string off losses (amplified by the skew) often makes the expected value of the strategy negative. The reality is, Tooleb and his posse of traders, quants, and advisers can make far more money with books, consulting, super-expensive seminars than actually trading, and explains why Tooleb closed his fund.

From the FAQ page:’

Why do you call it “Mini” certificate?

A one week program delivers a mini-certificate. We plan a second week in the future, for a more technical certificate.

It’s little more than a very expensive receipt.

Mini is a good way to acquire insights without being overly taxed.

That’s a major reason why the certificate is worthless. An actual quant degree requires mathematical rigor, which this program lacks.

What are the requirements to enroll?

Simply, some experience with risk and, being a typical reader of, say, Antifragile or similar books.

The honest answer: your wallet, and little else. Unlike prestigious organizations (Harvard, Stanford, Singularity Institute, etc.) that screen applicants, the bar isn’t just low – it’s non-existent. A cadaver could get one of these certificates if it could provide the money.

What makes your program different?

Most risk “certification” are design to learn to comply with Basel and other regulations. We teach risk.

Methods taught by non-risk takers wouldn’t have helped with the latest banking crisis. Ours would.

See the two graphs below from Silent Risk

Spoiler alert: his whole strategy is to buy volatility, which has a negative expected value, save for a few instances like 2008.

(Look at VXX, a trading vehicle that is a proxy for going ‘long’ volatility, which has lost some 99.9% of its value since 2009. The reason for this is because one cannot simply ‘buy volatility’; you must buy volatility futures, which are overpriced relative to the spot price due to contango. An abundance of literature also shows that out of money put options are too expensive. The extrapolated distribution that underpins these put options overestimates the occurrence of large declines in stock prices.)

Q: I am considering a career switch. How will the certificate help me?

A: The Mini-certificate is priced at about 40% less than an executive MBA, and requires a tenth of the time and financial commitment, so we believe that the payoff will be quite generous. We certainly have the name recognition since we have more “impact” in the real world than all other people involved in risk combined. (For instance, to get an idea of the name recognition in business, just one of our books, The Black Swan has had many more public mentions than all other books on probability and randomness by all other authors combined.)

40% less and still worthless. An MBA, devalued as those are becoming, is still recognized by employers as a valid credential; a ‘mini certificate’ is not and never will be. You’d be better off just scribbling in crayon the words ‘mini certificate’ on a piece of paper – at least you’ll save $7,000.

Talk about the pot calling the kettle black…

Here is some environmentalism nonsense Tooleb re-tweeted in approval:

No mention of the floods of refugees into Paris, which is the real disaster.

Islamic terrorism is a bigger threat than than all of those. Trillions of particles of dust and asbestos kicked into the air as a consequence of the World Trade Center attack isn’t good for the environment, either. All the wars and suicide bombings due to Islam, causing much destruction and suffering.

Taleb’s CV

Part 1: Nassim Nicholas Taleb: Thin-Skin In The Game

Going through Taleb’s CV, it’s not as impressive as its length suggests. Owing to his large media presence, getting published in some journals is easier, and a lot of his papers are duplicates of the Black Swan concepts. There are also a lot of opinion and policy pieces, which may not count as being scientific. Other papers are collaborations such as with Emanuel Derman. Here’s one such paper on the CV, which is very short and is not particularity new or novel. Although Einstein’s special relativity paper was also very short, typically a substantive research document is at least a dozen of pages (in order to sufficiently convey the significance of the new finding. Owing to all the ‘low hanging’ fruit being picked in competitive fields such as finance, finance, and math, it has been my observation papers typically have to quite long), but all of Taleb’s papers are extremely short.

A 2004 paper by Taleb, Bleed or Blowup? Why Do We Prefer Asymmetric
, comes in at only 15 pages including illustrations and an inordinately long list of references for such a short paper, and is very light on math and data analysis. Also the subject of asymmetric payoffs was not a new concept at the time. I doubt this would even pass for a master’s thesis.

It shows it was published in the JOURNAL OF BEHAVIORAL FINANCE, which sounds prestigious because behavioral finance is an important topic that has received considerable attention in recent years, so therefore it must be an important journal, right? Nope. Wikipedia shows an impact factor of .2 – putting it at the bottom of the heap:

According to the Journal Citation Reports, the journal [1] has a 2010 impact factor of 0.262, ranking it 71st out of 76 journals in the category “Business, Finance”,[2] and 256th out of 305 journals in the category “Economics”.[3]

That’s pretty bad. In contrast, the Journal of Finance has an impact factor of 4, putting it among the top five most prestigious economics journals in the world.

Counterintuitively, the prestige of a journal tends to be inversely proportional to its specificity. The titles ‘Journal of Finance’ and ‘Journal of Quarterly Economics’ sound very broad, but they are also among the most prestigious economics journals. These journals will publish papers covering a wide variety of topics – trade policy, securities regulation, financial mathematics, quantitative finance, microeconomics, econometrics, behavioral finance – provided the research is of a high enough caliber. Lesser quality papers tend to get published in more specific-sounding journals, with long, keyword-rich titles such as Journal of Statistical Economic Methods.

The handful of papers in the CV are all sparse and published in obscure, low-impact journals. Is this a conspiracy to suppress his research? No, his research just isn’t that novel and or original. Rare events happen, people occasionally underestimate risk, and options have asymmetric payoffs. Big deal.

Also it’s extremely easy to pad a CV. Einstein is reported too have published ‘over 200 papers’ but most of these of variants of his majors work (the stochastic model of Brownian motion, the photoelectric effect, general relativity (along with Hilbert), and special relativity (mass-energy equivalence)). Major ideas can be broken apart into smaller papers, along with applications of said theories, turning a handful of ideas into hundreds of papers. Listing TV appearances, which the vast majority of people won’t verify, is another way to pad a CV. Russia Today, for example, will have almost anyone on.

Late mathematician Gian-Carlo Rota describes how duplicate results, or variants of a single results, can be published in multiple journals:

As I looked through his Collected Papers however, another picture emerged. The editors had gone out of their way to publish every little scrap Riesz had ever published. It was clear that Riesz’ publications were few. What is more surprising is that the papers had been published several times. Riesz would publish the first rough version of an idea in some obscure Hungarian journal. A few years later, he would send a series of notes to the French Academy’s Comptes Rendus in which the same material was further elaborated. A few more years would pass, and he would publish the definitive paper, either in French or in English. Adam Koranyi, who took courses with Frederick Riesz, told me that Riesz would lecture on the same subject year after year, while meditating on the definitive version to be written. No wonder the final version was perfect.

So that’s pretty much what Taleb has been doing for the past decade…milking this ‘Black Swan’ concept for all it’s worth, to the tune of millions of dollars in book deals and lots TV appearances, talks, and mediocre papers.

Part 3: Taleb’s Real world Risk Institute

Nassim Nicholas Taleb: Thin-Skin In The Game

The Talebian One himself, Nassim Nicholas Taleb, whom I have written about at length on this blog, has a new book, “Skin in the Game”, which he has been promoting on Twitter. This is not a review of the book; rather, it’s a review of his broader ideas and character.

The problems with Taleb are as follows:

1. contradictory views (holds both elitist and populist views)
2. apparently oblivious about modern option pricing and markets; misconstruing the views of experts (his literary career is predicated on two falsehoods: that options are incorrectly priced and that traders, statisticians, and policy makers are oblivious to tail risk)
3. disproving ‘black swan’ theory requires trying to prove a negative
4. thin-skinned and short-tempered (on Twitter, anyone who doesn’t agree with him is a ‘BS artist’, a ‘journo’, a ‘charlatan’, or an ‘idiot’)
5. a dearth of viable/realistic solutions to financial regulation problems and risk

Why do I care? Because he goes around on Twitter bullying people, calling scientists and economists ‘frauds’ and ‘chalatans’, but cannot take criticism, whereas Dawkins, for example, has received much more criticism than Taleb, for far less, and takes it much better. Although Eric Falkenstein has written some much needed criticism (pretty funny review of Taleb’s AntiFragile) of Taleb regarding volatility and options, more is needed.

Taleb’s views are full of contradictions. For example, in “The Most Intolerant Wins: The Dominance of the Stubborn Minority” he writes:

The entire growth of society, whether economic or moral, comes from a small number of people. So we close this chapter with a remark about the role of skin in the game in the condition of society. Society doesn’t evolve by consensus, voting, majority, committees, verbose meeting, academic conferences, and polling; only a few people suffice to disproportionately move the needle. All one needs is an asymmetric rule somewhere. And asymmetry is present in about everything.

This is an elitist view, which I agree with, but it seems contradictory to his populist-inspired attacks on universities and academia, his support of Sanders, and his promotion of the ‘Fat Tony’ character (the ‘everyday man’) over the academic. It’s like he can’t make up his mind. He seems to be subscribing to the Daniel Kahneman view that everyone, including the smart and elite, are irrational and susceptible to simple cognitive biases (like the conjunction fallacy and anchoring), in effect promoting leveling – that ‘smart people’ are not so smart and rational, after all. This is also similar to the blank slate, which could explain why Taleb is so close to Gladwell and Kahneman but enemies with Pinker. (This feud dates back almost a decade, during the so-called IQ Wars.) As I explain, proponents of the ‘blank slate’ often believe that no one is intrinsically better than anyone else (leveling), and that it’s the role of the state to help create equal outcomes. Moral relativists tend to believe all humans are inherently irrational and corrupt, and that that is no preferred standard of morality or a ‘more rational’ group of people. Although Bryan Caplan argues that most people are too irrational, too ill-informed to vote, the distinction is that Taleb holds the reverse view, which is that the ‘elite’ are irrational and the ‘everyday man’ is more rational and exalted, a view compatible with left-liberalism and moral relativism.

If there are a small number of superior people (as Taleb indicates by the quoted passage), why not put them in power? Instead of making arguments for why smart people deserve more, he advocates populist views and policy that would cause harm to the most productive, most useful members of society. By doing away with centralized, interconnected systems, society would fall, and the smart, exceptional people that Taleb pretends to care about would find their talents misplaced. Society reverting to a post-apocalyptic, chaotic, disconnected, hunter-gatherer state would hurt the cognitive elite, since their priorities would likely be diverted to finding food and shelter, not making abstract discoveries.

Taleb attacks academia, failing to realize that academia (once you eliminate the ‘safe spaces’, ‘trigger warnings’ and other SJW-nonsense) is essential for sharing ideas. The equations Taleb uses were derived by academics cooperating with each other and sharing their ideas, with one idea built upon an earlier one. That’s why his attacks on ‘nerds’ doesn’t make sense: nerds derived all the math he uses in his papers, and without ‘nerds’ (or the ancient equivalent), humans would probably still be scribbling in dimly-lit caves…

Although Taleb occasionally hints at holding ‘libertarian’ economic views, which is why he’s respected among ‘alt right’ circles, for the reason above and others, he seems socially liberal. Being a liberal is more than just identifying as a liberal – it’s mindset, a constellation of beliefs. It’s about attacking conservative figures. It’s about attacking ideas that are congruent to the ‘right’, including HBD, ‘order’, and ‘stability’.

Here is Taleb attacking Trump and the Ronald Reagan in the same tweet:

Instead of taking Taleb’s word for it, I decided to investigate further, reading actual books on the matter instead of tweets, and while Reagan was probably not as sharp as Nixon, he was competent enough for the job. Contrary to popular myth of being an amiable dunce, Reagan was an eloquent speaker, a quick study, and had strong command of the issues. He also wrote thousands of letters and was well-read on a wide variety of topics, from philosophy to history.

Also, how many Tweets by Taleb are there criticizing Obama’s personhood (not policy)? Zero. Although Taleb may criticize some of Obama’s policies (such as foreign policy), the attacks are never personal, unlike his attacks on republicans like Trump (who he calls ‘Donaldo’) or Reagan.

Furthermore, Taleb has never spoken out against SJWs, black lives matter, or false rape accusations.

Here is Taleb endorsing non-interventionism, although such views are not unique to him:

There is a famous story about George Washington during the drafting the Constitution. It was suggested that a clause be included to limit the size of standing armies, to which Washington quipped to the effect that there should also be a motion limiting the size of an invading army.

That’s the problem with non-interventionism – it only works when everyone adopts it, but like the size of an enemy army, it’s perilous to make such a generous assumption. Non-interventionism means allowing the enemy to build-up at their leisure until they are ready to mount a massive attack, rather than eliminating the enemy at the onset of potential trouble. Neutrality didn’t prevent Pearl Harbor from getting bombed, and the attack forced America to abandon non-interventionism and enter the war, although one can argue that American involvement in WW1 was an instigating factor.

In some cases, non-interventionism may not be an option or may lead to undesirable outcomes. Consider three countries, A,B, and C. A and B are trade partners. B and C are neutral. Then B does something, inadvertently perhaps, to provoke C into war. With B losing the war, the economy of A is endangered, so A must intervene on behalf of B.

But doesn’t interventionism conflict with Pinker’s thesis about the world becoming less violent? Not necessarily, because America’s military might and willingness to use it (big stick) to defend its interests may dissuade countries from engaging in war, knowing that the United Sates may intervene at great cost to the aggressor.

In showing his softness on terror, here is another tweet:

Yes, technically that is true, but sometimes Islamic terrorism is really just Islamic terrorism. Incompetence allows terrorist attacks to happen.

Even liberals such as Richard Dawkins and Sam Harris understand the threat posed by Islamic terror on free society, and understand that the more radical elements of Islam are a threat to free speech, the religious equivalent of SJWs. But Taleb is silent on the matter, refusing to denounce Islamic terror and mass Islamic immigration into Europe.

Here is Taleb attacking Hillary:

I don’t like Hillary either, but it’s obvious that by never attacking Sanders, Taleb is sympathetic to welfare liberalism. Sure enough, here is a tweet praising Sanders:

I fail to grasp how promoting a message of division and class warfare is ‘saintly’.

Taleb wants to believe that the complexities of science and theory should be reduced to a bunch of aphorisms and heuristics. Or that ‘skin in the game’ is more important than expert opinions, but as Scott notes:

I guess the thing I’m not sure about is – does personal experience/”skin in the game” reduce fully to factual propositions? Does a factory worker have an advantage over a journalist in understanding globalization just because he knows that being laid off is really bad, and that it’s harder to get a new job than a journalist thinks – two things we would expect any journalist worth their salt to already know about? Or is there some hard-to-communicate knowledge that’s neither factual nor just a cover for “the secret hard-to-communicate knowledge that I am selfish and want a system that benefits me rather than other people”?

A person who is unemployed may be able to provide a personal account to justify why the economy is bad, but his opinion may be skewed by his own negative predicament and thus not indicative of the economy as a whole. Rather than deferring to anecdotal evidence, it’s better to defer to the actual economic data itself, weighing the summation of the good against the bad. Yes, losing your job sucks, but it doesn’t mean the whole economy sucks. This is related to the fallacy of composition.

Taleb’s arguments are easy to debunk by anyone who has actually traded options, understands elementary statics and option trading, or anyone who has actually studied option pricing, and being that I have done all three, dismantling Taleb’s arguments is a breeze:

Taleb’s books, papers and lectures repackage knowledge that statisticians, traders, and economists are already well-aware of. Fat tails and concave/convex risk are not new concepts. Pretty much all he does is state what anyone with some background knowledge already knows: that, yes, all statistical models have limitations, selling options can entail a greater loss than buying them, a single ruin can undo all prior wins, and models may underestimate risk. Although there is is nothing wrong with repackaging – new ideas are hard to come by, and pretty much all popular science books regurgitate information that exerts already know – Taleb has made a career out of distorting and misconstruing experts and professionals, whether it’s about statistics, option trading, or risk management. Taleb insist traders and statisticians are are obvious to the concept of fat tails, convexity, and ‘tail risk’, when in fact they are aware of it, and long before he wrote his books and papers ‘discovering’ it.

If you read his Twitter, Taleb often posts links to various math equations as if the concepts are new or his own, when they are not. It would be like me transcribing calculus equations from a textbook onto my website, Twitter, and PDF files and then calling them my own. To those who don’t know calculus, I may look like a genius, but to those who know calculus, I’m just re-posting stuff that is already known.

Taleb claims to be an option trader, but some of his comments suggest ignorance of how modern option markets work, as well as ignorance or omission of post-Black Scholes option pricing literature. Taleb argues that options are incorrectly priced to account for black swans – but, actually, options are priced correctly to account for jump processes and skew, with the research on the matter (jump diffusion models) going back to the 70′s. There are very complicated option pricing models that account for jumps and variable volatility. A Google search reveals a handful of pricing models that generate ‘fat tails’ and ‘volatility smiles’.

Second, the EMH stipulates that options are priced correctly, and if they weren’t then traders could make abnormally high returns from the inefficiencies, which would then eliminate the inefficiencies. Active management has done very poorly in recent years, suggesting a market that is more efficient, not less. Option traders make money from selling overpriced options and by betting on market direction, but not from the options themselves being inefficient or the market pricing the options incorrectly.

In a paper, Taleb argues that selling OOM (out of money) puts is a bad idea due to the volatility explosion, but this assumes that options are priced strictly under the Black Scholes framework and that options can be traded at infinitesimally small fractions of a penny. In reality, the volatility smile or skew makes these far OOM put options much more expensive than assumed by Taleb and the Black Scholes framework, thus substantially limiting potential profit. Also, there is a minimum ‘ask’ price for OOM puts, usually a couple cents. The huge multipliers given by Taleb are under the assumption you can buy OOM options for infinitesimally small fractions of a penny, which you obviously can’t.

Here is Taleb again talking out of both holes, dragging in the mud economist Justin Wolfers in the process:

Taleb fails to grasp that just because rare, unforeseen events occasionally yield option buyers extremely large profits, doesn’t mean the options are incorrectly priced or that option sellers are oblivious to risk. As I explained earlier, OOM (out of money) options have a skew or smile to account for the possibility of these rare events. This means that although option buyers can make large profits, the skew makes the expected value of these trades (over many years) still negative. This means that for every trader who strikes it rich with a black swan, many more will fail, and the ‘house’ will still come out ahead. No free lunch. Just like Taleb underestimates the intelligence of his critics and the intelligence of policy makers, Taleb vastly underestimates the intelligence of modern markets. Anyone who reads a Taleb book thinking it will give them an edge in today’s super-efficient market, is just a sucker.

If you can judge someone by the company they keep, Taleb prefers the company of pseudoscientists to actual scientists and economists, an indictment on his intellectual credibly, and is why scientists (rightfully) ignore Taleb’s tweets, dismissing them as rantings of an unhinged dilettante.

Taleb is incapable of debating at a high school level. For example, regarding Pinker’s “Better Angels of OUr Nature”, which argues that the world has become less violent, Taleb’s counters that we don’t know the ‘true’ variance of the distribution that underpins violence, meaning that Pinker is not accounting for possible black swans like nuclear war that may kill millions of people at once. Taleb uses this argument against all his critics, but the problem is, methodologically, such an argument is fallacious. Taleb is invoking the argumentum ad ignorantiam logical fallacy by forcing Pinker prove that there won’t be nuclear war or some black swan, and in the absence of such a proof Taleb must be right. Of course, such a proof is impossible. Whereas Pinker’s arguments involve empirical evidence of how the world is safer, Taleb waves it away by forcing Pinker to prove a negative: that nuclear war (or some other great crisis) won’t happen. (See Russell’s teapot)

Here’s a Facebook post by Taleb defending pseudoscience purveyor Malcom Gladwell:

Many people are harrassing Malcolm Gladwell. Assuming critics are right about the anectodal aspect of his work, many many social “scientists” are much worse, many are dangerously ignorant of the very notion of “evidence” and the validity of statistical claims. And if he who is clueless about statistical inference is clueless about science.

By ‘many people’ he means anyone with a brain? Anyone with at least a room temperature IQ, if they think hard enough, can see through Gladwell’s nonsense. It’s not surprising both authors, who have made fortunes repackaging unoriginal ideas and disseminating erroneous ones, gravitate to each other.

Although on Twitter Taleb constantly rails against journalists (he calls them ‘journos’), his BFF Gladwell is a journalist, albeit a very glorified one that is probably often mistaken by non-scientists for being a scientist.

On Twitter, Taleb regularly attacks real scientists – Richard Dawkins and Pinker – who are also critics of SJW-liberalism. I guess Taleb would rather side with the SJWs than side with scientists who are at war with them (the SJWs), in the battle for intellectual honesty and the free dissemination of ideas.

As other have noted, Taleb is thin-skinned as rice paper and will block anyone on Twitter who disagrees with him, as well as having a short temper. He’s also liable to insulting his intellectually superior opponents, with retorts like ‘bullshit’, rather than forming actual substantive counterarguments. He’ll even insult regular Twitter users who merely point out the holes in his arguments, which are often wide enough to drive a truck through.

Here’s a recent example of Taleb accusing Noah Smith, who despite being a liberal deserves praise for standing up to the Taleb bully, of being a ‘charlatan’ for writing a negative review of one of Taleb’s books, as well as calling someone else an ‘imbecile’ and an ‘idiot’ for disagreeing:

For some who wrote a book titled ‘Antifragile’, Taleb sure has a fragile ego.

It’s funny how Taleb accuses Noah of using strawmen arguments when Taleb himself can’t formulate a cogent refutation, apparently conflating car theft, which is a crime, with a negative book review, which is protected speech under the First Amendment…

He also doesn’t offer any good solutions to regulatory problems in his rants against ‘too big to fail’ and ‘systemic risk’, and like Bernie Sanders and Elizabeth Warren, he blames bankers and Wall St. but ignores the role of the irresponsible homeowner. In response to the problem of black swans, he say to make systems ‘anti fragile’, but this is not a solution; it’s a buzzword. In a perfect world there would be no systemic risks, but such a world cannot exist if economic activity is not to be disrupted significantly. Just saying ‘break up the banks and make everything smaller’ is not only unfeasible, but it may backfire. Smaller banks and and less centralization didn’t prevent the Great Depression or the many smaller crisis of the 1800′s and early 1900′s. In fact, central banking was created to prevent bank runs, which plagued the economy for much of the 18th, 19th and some of the early 20th century. From the early 1800′s up until 1920, I counted eight financial panics in the US, compared to just two (Great Depression and 2008) in the past 100 years, so one can argue that centralization has made the US financial system more stable, not less so. The savings and loan scandal was very small relatively speaking to the overall economy, so it’s excluded. Although there were recessions in the 70′s, 80′s, 90′s, and 2000′s, the financial system itself was not at risk but rather these recessions were attributable to economic cycles.

It’s unreasonable to blame policy makers and banks for failing to anticipate black swans, because by Taleb’s own definition they are random and unpredictable. Imagine a bus is hit by meteorite, killing everyone but the driver. Is the driver culpable for not foreseeing the impact? Rather than losing sleep over black swans or trying to be psychic, a more practical approach is to have systems in place to contain crisis as soon as it arises, along with reform to help prevent future crisis. The 2008 bank bailout (TARP), although maligned by almost everyone, was a success, sequestering the weakest parts of the economy (banking, housing) so the healthier parts (payment processing, technology, web 2.0, retail) could thrive. Eight years later, TARP has surpassed even the wildest of expectations, with lending standards much more stringent and bank reserves fatter than ever, and by early 2011 the treasury reported a profit.

Part 2: Taleb’s CV