The Black Swan Book – Taleb’s Reminder of Ancient Wisdom

In a way, Nassim Nicolas Taleb’s book – The Black Swan: the Impact of the Highly Improbable – is nothing new. The basic premises of the book – that unexpected events can happen and throw all calculations out of whack, especially those that were founded on things staying exactly the same forever; that the more complex a situation is, and the larger the scale of the matters involved, the bigger the chance there is for unexpected events, or “Black Swans”, to emerge; that those used to conventional thinking and adherence to a rigid set of ideas are least well prepared to deal with such matters; that flexibility in thinking is the best way to deal with the unexpected – are not the invention of this writer.

 They have been known since antiquity, and have formed the basis for such philosophical works as Niccolo Machiavelli’s “The Prince”, along with many proverbs and sayings, such as “security [i.e. blind complacency] is only a hand’s breadth from hell”, and other colorful phrases of a like ilk. There have been many different solutions to the problem, of course – from Machiavelli’s call to be a man of action who seized opportunities and thus has at least a chance to defy fate, to Mr. Taleb’s rather fatalistic belief that the only solution to Black Swans is stoical resignation.

    However, the fact that the idea behind the book is not original is in no way a criticism of the work – indeed, it is a recommendation. The Black Swan is an extremely timely reminder to the world that hermetic academic thinking and a belief in tame predictability is a road to disaster. The economy of the United States has been steered firmly towards the rock of catastrophe for several decades through several bland, ivory-tower beliefs.

    One is that complex financial markets based on nearly nothing other than the morale of day traders should be the main factor controlling the fortunes of our economy. An equally unshakeable belief among economic decision-makers is that exporting every business and job to China will make our economy stronger because David Ricardo, a long-dead English economist, said that exporting your entire economy would cause your national resources to be redirected to some unspecified “higher valued use” which would make you even more prosperous – a theory founded on 11 “simplifying assumptions”, several of which were that only two countries would ever be involved in trading internationally, that their populations were permanently unchanging and of exactly equal size, and that all economic activity consisted of producing only two different goods – the usual examples being either guns and butter, or pickles and pipes. On such foundations has our modern economy been built.

    The Black Swan book is a tour de force of how such limited thinking, believing that everything will always run smoothly in predictable channels, is no more than a setup for a colossal sucker punch by destiny. Those who want to understand the current ongoing economic depression would do well to read this book.