Nassim Nicholas Taleb (Scholar Investor) – Black Swans and Interventionists (May 2017)

Chapters

Abstract

“Challenging Conventional Wisdom: Nassim Nicholas Taleb on Foreign Policy, Economic Stability, and Systemic Fragility”

In a thought-provoking interview, Nassim Nicholas Taleb, renowned for his critical approach to traditional views, delves into complex issues surrounding foreign policy, economic stability, and systemic fragility. He criticizes the lack of accountability in foreign policy, highlighting the dangers of interventionism and the illusion of control in complex systems. In economic matters, Taleb expresses concern about the current state of high debt and low interest rates, pointing to the potential for a severe downturn. His insights offer a compelling critique of interventionist policies and quantitative economic methods, advocating for a more organic and libertarian approach to managing global affairs.

Skin in the Game: Foreign Policy and Accountability

Taleb stresses the importance of accountability in foreign policy decision-making. He argues that decision-makers must have a personal stake in the outcomes of their policies, drawing parallels to the aviation industry where pilots’ personal safety is directly linked to their decisions. This concept challenges the current practice where policymakers recommend interventions without facing personal consequences, leading to reckless decisions and systemic failures.

Taleb highlights the lack of accountability among those recommending interventionist foreign policies, leading to a systemic failure in learning from mistakes. He notes that Ron Paul suggests that neoconservatives might change their attitudes if they had skin in the game, emphasizing the disconnect between those pushing for war and those who have to fight it. Daniel McAdams points out the paradoxical situation where think tank experts who make mistakes in foreign policy often benefit from those mistakes, leading to a lack of accountability.

The Cycle of Failed Interventionism

Taleb critiques the repetitive nature of interventionist foreign policies, exemplified by the policies in Iraq, Libya, and Syria. He points out the absence of negative consequences for the individuals responsible, allowing for a cycle of failed interventionism where the same mistakes are made repeatedly, with no lessons learned.

Taleb emphasizes the mental defect of individuals who repeatedly recommend interventionist policies despite their negative consequences, as they face no personal consequences for their actions. McAdams highlights the inability of policymakers to acquire enough knowledge and understanding of the cultures they operate in, leading to arrogance and failed interventions.

Complexity and Predicting Rare Events

Highlighting the complexity of international relations, Taleb criticizes the arrogance of policymakers who believe they can control complex systems. He advocates for a humble approach to foreign policy, acknowledging human limitations in predicting rare events like the Arab Spring or the Soviet Union’s collapse.

Taleb argues that interventionism is nonsensical in complex systems where cause and effect are difficult to identify, and that it can lead to chaos and fragility. He explains how government intervention can stabilize systems artificially, giving a false impression of solidity, but ultimately leading to fragility and sudden collapse.

Interventionism and Systemic Fragility

Taleb argues that government interventions in complex systems, such as the economy or environment, often lead to fragility and instability. He contends that such interventions create an illusion of solidity, masking underlying vulnerabilities and leading to potential collapses.

Taleb notes the importance of reciprocity and balance in predator-prey dynamics, which are absent in modern foreign policy, where aggressors face no consequences. Ron Paul raises the question of whether certain consequences of bad government policies, such as unemployment and inflation, fall under the category of unpredictable rare events or inevitable outcomes.

Foreign Policy and Complex Systems

Taleb emphasizes the danger of over-stabilization and interventionism in foreign policy, noting that a focus on first-order effects often neglects the more significant second-order effects in complex domains.

Taleb emphasizes the need for caution when dealing with complex systems, as they are prone to unintended consequences. He notes that foreign policy and complex domains are dominated by second-order effects that are often overlooked in decision-making.

Gaming and the Ludic Fallacy in Foreign Policy

He criticizes the ludic fallacy, the assumption that real-life situations can be understood through gaming, highlighting the futility of wargaming and set responses in unpredictable complex systems.

Taleb argues that the idea that real-life situations can be understood through gaming or wargaming is flawed. He advocates for a foreign policy focused on minimizing involvement in situations that are not fully understood.

Minimalist Defense Strategy

Taleb advocates for minimal involvement in foreign affairs, stressing the importance of preparedness in physical, cyber, and biological warfare, and championing non-intervention as the first line of defense.

He believes that the best foreign policy and defense strategy is to avoid intervention as much as possible. He suggests that building a strong defense should include physical (military) and non-physical aspects such as cyber security. He notes that cyber threats are more significant today than physical threats due to interconnectedness. Taleb also highlights the vast danger of biological warfare compared to nuclear warfare. He emphasizes that a good defense policy prioritizes non-intervention and understanding the consequences of interference, pointing to the Iranians’ enduring resentment over the US intervention in 1953 as an example of the long-term impact of interventionism.

Interventionist Foreign Policy Consequences

He discusses the negative impacts of US and UK interventions in regime changes, such as creating enemies, losing markets, and generating hostility, advocating for non-intervention to allow countries to solve their problems independently.

Taleb notes that the UK and the US’s intervention in foreign regimes has created enemies, lost markets, and fostered hostility. He argues that continued intervention weakens the intervening countries and does not fix the world. Taleb believes that the best way to fix the world may be to remove those in charge of foreign policy from their positions.

Foreign Policy and Medicine Analogy

Drawing an analogy with historical medical practices, Taleb points out that foreign policy interventions often cause more harm than good, akin to doctors historically harming patients more than helping them.

Taleb compares the current situation to historical Roman emperors, many of whom died in battle or faced significant personal risks, which is lacking among modern policymakers.

Quantitative Economics and Economic Crisis

Taleb expresses skepticism about the approaches of quantitative economists, especially in light of the 2008 crisis. He criticizes the increased fragility due to interconnectivity and the role of central banks, noting the failures of both the Obama and Trump administrations in addressing underlying economic problems.

Taleb notes that quantitative economics has not been successful and its practitioners often claim “it’s different this time” at the end of a cycle. He points out that the last crisis was worse than preceding ones due to increased interconnectivity and the role of “empty suits” in the Fed. He observes that since the 2008 crisis, debts have increased and no problems have been solved, with high hopes placed on President Trump, who is buying the market at its highs.

Economic Outlook and Analysis of the Last Recession

He reflects on the economic policies of the Obama administration, the role of the Federal Reserve, and the asset price distortions caused by low interest rates. Taleb anticipates a severe economic downturn due to excessive intervention and a false sense of stability.

Taleb criticizes the Federal Reserve’s policies, especially under Greenspan, arguing for the elimination of the Fed to allow for a more organic economic order. He notes the distortions in asset prices and the exacerbation of inequality due to ultra-low interest rates.

Pessimism about Economic Recovery and Intervention in the Middle East

Taleb remains pessimistic about a full economic recovery and criticizes the interventions in the Middle East, particularly in the Israeli-Palestinian conflict. He believes non-intervention would have allowed for organic resolution through trade and direct negotiations.

Taleb questions the robustness of quantitative methods in economic decision-making and highlights the potential of organic currency creation, as seen with Bitcoin.

The Federal Reserve and Asset Price Distortion

Criticizing the Federal Reserve’s policies, especially under Greenspan, Taleb argues for the elimination of the Fed to allow for a more organic economic order. He notes the distortions in asset prices and the exacerbation of inequality due to ultra-low interest rates.

Quantitative Methods and Organic Order in Currency

He questions the robustness of quantitative methods in economic decision-making and highlights the potential of organic currency creation, as seen with Bitcoin.

Pushback Against Elite Incompetence and Optimism for the Future

Taleb observes a growing discontent with the incompetence of interventionist elites, leading to a backlash in electoral outcomes. Despite his concerns, he remains optimistic about the future, envisioning a libertarian world where news is democratized through social media and where organic, Hayekian management prevails.

Optimistic Outlook on the Future of the World

Social Media and the Return to Two-Way News:

– Taleb expresses optimism about the future, despite pessimism about the state of financial markets.

– He sees a “libertarian dream” where emergent, organic, self-organized ways will allow for the destruction of what needs to be destroyed and the building of what can be built.

– The rise of social media is bringing back the old days where news are two ways, allowing for more balanced and organic news transmission.

Control and Organic Management:

– Social media has broken the control of traditional news sources like the New York Times and CNN, giving more power to the people.

– The election of Donald Trump despite the opposition of 264 top newspapers shows the declining influence of these traditional news sources.

Hayekian Management and Optimism:

– Taleb sees the future world being managed in an organic, Hayekian way, which makes him optimistic.

– This organic management will allow for more destruction of what needs to be destroyed and the building of what can be built.

– Taleb believes this will lead to many more positive things in the world.

Notes by: OracleOfEntropy