Nassim Taleb suggests ways to make economic life closer to our biological environment: smaller companies, richer ecology, no leverage. The risk takers of the economy should be entrepreneurs, not bankers; Companies shouls be born and die every day, without making the news.

In other words, a place more resistant to black swans.

Ten principles for a Black Swan-proof world

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”.

5. Counter-balance complexity with simplicity. The complex economy is already a form of leverage: the leverage of efficiency.

6. Do not give children sticks of dynamite, even if they come with a warning.

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. Be robust in the face of them.

8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is denial.

9. Economic life should be definancialised. Citizens should not depend on financial assets or fallible “expert” advice for their retirement.

10. Make an omelette with the broken eggs. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself.

>

Source:
Ten principles for a Black Swan-proof world
Nassim Nicholas Taleb
FT, April 7 2009 20:02

http://www.ft.com/cms/s/0/5d5aa24e-23a4-11de-996a-00144feabdc0.html

Category: Derivatives, Mathematics

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

63 Responses to “How to Black Swan-proof the World”

  1. Marcus Aurelius says:

    Common sense is so rare among those commenting on our plight, nowadays, it almost looks like genius when we come across it.

  2. This is another, easy, example of why Taleb is one of the Best.

    MA,

    to your point, think of how many, actually, know a similiar set of prescriptions to be *True, yet never utter them in Public.

    as Orwell gets credited w/: “In times of Universal Deceit, telling the Truth becomes a Revolutionary Act.”

  3. investorinpa says:

    Really good stuff…might I also suggest that lenders and lending institutions have minimum loan requirements that they have to adopt, including but not limited to 1) 10-20% down payments 2) Full documentation of reserves, collateral, and cash prior to and during the loan process 3) All lenders who have loan officers must have state or national certification.

    Additional “Preventing Black Swan” measures can include 1) Banks must use a 50/50 split of Mark to Market and the current recently revised standard (eg the real number for their profits/assets must be the average of the real mark to market ratio and the phony number they use now). 2) Any bank that is more than 20 to 1 leverage gets taken over by the FDIC immediately. 3) Companies like GM, GE, Ford that make their money selling financing instead of selling products must abide by the same set of standards that banks do.

  4. moneyneversleepsblog says:

    Taleb appears to be contradicting his own black swan theory. For one black swans do not have to be negative, they can be positive. Taleb lists many successful inventions that came from failures, accidents and changed the way we thought and the way we lived. The point of the black swan theory is you don’t know what is out there, so how can one truly prevent that? And would you want to prevent that? Taleb’s whole point is the world thrives on the black swans, the unknowns that we can’t predict is what drives everything. He notes that a few great market days compose the vast majority of the gains for that year.

    Given Taleb’s fame, he should be the first to admit that perhaps there is a chance, however small, that a high impact black swan event could be out there that would have a POSITIVE effect on the current situation. People ask how will we get out of this? The answer is likely in the unknown according to Taleb’s work.

    http://moneyneversleepsblog.blogspot.com/

  5. call me ahab says:

    great post- especially item #7- any confidence that was lost was due to the bankers themselves losing the public trust and putting the whole economy at risk- why anyone would accept anything they say now amazes me- I can only hope that the stress tests lay it all out for every one to understand- especially investors- let’s hope the government doesn’t attempt to deceive investors- with the intent of instilling confidence in a bankrupt system.

  6. Mannwich says:

    Most average people clearly care most about the 401k’s and mutual funds and just want to get “back to even” or as close to it as possible. Most don’t care how we get there at this point, even if it’s complete bullshit. I think that’s obvious, but when things tank again (and they WILL tank, the question is when?), there will be even more anger the next time around. Until we get away from phony, fraudelent activities as the underpinnings holding the system together, we are nowhere in reality. It’s all a big game of pretend at this point all around.

  7. Super-Anon says:

    In other words, do the complete opposite of what we’ve been doing so far in response to this crisis.

  8. dps says:

    Isn’t a “Black Swan” just a statistical justification given by mathematicians as to why their models were wrong? A Black Swan implies that any event is possible, so even when you’re “wrong”, theoretically, you’re right!
    Otherwise, the sound principles listed above should apply in any economy to any business (watch out Exxon).

  9. EAR says:

    #5!!!

    The complexity makes it very difficult to unwind and unravel the mess. It also provides cover for the approach to unwinding and unraveling the mess.

    “I watched Geithner on CNBC/Meet the Press/Charlie Rose/Jimmy Kimmel and he said that our financial problems are ‘complicated’ and that the solutions are ‘complicated.’ We should let him and anyone who knows how to handle problems that are this complex do so. How do I know he knows how to handle the problem? Simple, he constantly acknowledges it’s complexity which projects an understanding of the problem, duh!”

    #9???

    I like the sound of that. Examples?

  10. Mannwich says:

    @EAR: Geithner also told Congress in a hearing that solving this crisis “wasn’t about ability”, but about “political will” to do whatever is necessary to solve these problems (read: print and dump as much money down the black hole that are our major financial firms). This also gives he and Summers political cover because they can (and no doubt will) always blame someone else (namely lack of political will, meaning Congress and the “littlepeople”) if/when this fails.

  11. Mannwich says:

    In reference to my post above – the thing that political and corporate elite learn in recent decades and still today at an early age from their parents and elite schooling is, above all, to master the art of ass-covering, namely CYA and political deflection, blaming others (namely the little people) for their mistakes when things go wrong. In my mind, that’s the absolute most important class that should be taught in school to prepare our youth for the reality in today’s corporate, financial, political world. It’s really all that matters, deflecting blame, hoarding adulation & the spoils from any successes, and weaseling out of anything remotely tied to accountability for any failures.

  12. jc says:

    Unfortunately, we keep doubling down, our “too big to fail banks” are now truly a systemic risk to the Fed/FDIC/Treasury who have limited bank failures to a couple dozen small fry but now must construct a smokescreen to conceal the results of a true stress test for The Immortal 19. All 19 will pass, thats a given, but now they need to go back to congress in a couple months to get more cash for the 19 “healthy” banks which have no money due to waves of foreclosures,commercial loan and credit card losses. tiny Tim will be begging for more money for these banks while they report record profits…

  13. jc says:

    Super-anon, yes exactly

  14. EAR,

    re: #9 It’s called “Investing in your Community”.

    what many forget is that Gov’t spending, and its associated Higher Taxation, crowds out Private spending options.

    see: http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=fraternal+organizations

    as, but, one example. and, yes, these go way beyond “Greek Rho” at your local U.

  15. moneyneversleepsblog says:

    We have a longer take on this debate here if anyone is bored…
    http://moneyneversleepsblog.blogspot.com/2009/04/positive-side-of-black-swan.html

    The sad part is, even if the rules are great ideas, who is likely to listen in the gov’t and adopt any of them? Taleb, like Roubini, is one of those guys that you wonder if he will still be around when this thing turns around and whether he will be ahead of the curve or not…

  16. usphoenix says:

    “Nassim Taleb suggests ways to make economic life closer to our biological environment: smaller companies, richer ecology, no leverage. ”

    He should have quit there. Or said that community works best. As in smaller regional or local banks.

    No community would have thrown money at AIG, GS, C , or any of the others. Let them fail and let our community prosper.

    Nuff said

  17. EAR says:

    Mannwich…

    “This also gives he and Summers political cover because they can (and no doubt will) always blame someone else (namely lack of political will, meaning Congress and the “littlepeople”) if/when this fails.”

    And say “We’re disappointed, but it’s not their fault. They just couldn’t grasp the complexity of the problem.”

    As to your next post, I had hopes that this financial tectonic shift along with the subsequent neo-frugality would hurtle many talented and intelligent people out of b-school and into some sort of public service, i.e. teaching. Too idealistic? Shoot, I’m still hoping that Geithner and Summers are on the right path in spite of all of the evidence to the contrary.

    MEH…

    I wonder if Taleb would have thought of that as an example?

  18. franklin411 says:

    It’s not hard to come up with a black/white or good/evil wish-list. The trouble is that the universe is not made of black or white. It’s made of shades of gray.

  19. lalaland says:

    All I know is I’m tired of metaphors. Just slap some specifics on these things so congress doesn’t have to argue whether e a kid has been handed labeled dynamite or a schoolbus driver crashed while blindfolded.

  20. usphoenix says:

    @franklin: Choose to disagree. Absolute power corrupts absolutely.

  21. and, a different perspective on #9:

    Ludwig von Mises: “The problem of rendering the underdeveloped nations more prosperous cannot be solved by material aid. It is a spiritual and intellectual problem. Prosperity is not simply a matter of capital investment. It is an ideological issue. What the underdeveloped countries need first is the ideology of economic freedom and private enterprise.” – Money, Method, and the Market Process

    which, sadly enough, is all too applicable to our, here in the NAU, current ‘Economy’..
    http://www.cfr.org/content/publications/attachments/NorthAmerica_TF_final.pdf
    http://www.spp.gov/

  22. John from Concord says:

    Shorter NNT: Anyone who rolled their eyes at me four years ago should never be allowed to make a professional living again.

    Are this guy’s 15 min up yet?

  23. constantnormal says:

    Allow the TBTF to fail? Squeeze leverage out of the system? Yeah, like that stands a snowball’s chance of ever happening. Might as well wish for people to stop making mistakes.

    It is interesting to think of the magnitude of the calamity, the amount of pain, that would have to be incurred before anything resembling these principles could ever be adopted.

    The entire existing economy would have to be reduced to the level of corner apple carts (the fruit, not the iPods), with Washington D.C. left in smoldering ruins before the powers-that-be would have their grip on the reins of power sufficiently weakened to permit such changes.

    It would have to be an event quite similar to of the French Revolution, guillotines and all.

    Myself, I’ll be ecstatic if a wave of sentiment swamped the nation to throw out incumbents and persisted for at least 3 election cycles. Depending on how many years we suffer at the bottom of this L-shaped recession/depression (and also when we reach the bottom), THAT might come to pass.

    That would permit a change somewhat like the series end of Angel, where the intrepid heroes fought not to defeat evil, but only to hold it at bay for a moment.

  24. EAR says:

    MEH…

    Ludwig von Mises: “The problem of rendering the underdeveloped nations more prosperous cannot be solved by material aid. It is a spiritual and intellectual problem. Prosperity is not simply a matter of capital investment. It is an ideological issue. What the underdeveloped countries need first is the ideology of economic freedom and private enterprise.”

    The first sentence is correct. The second indulges a desire to feel superior to someone. Third, yes. Four. sure. How does he assume the fifth sentence is realized?

    What underdeveloped nations need are a middle class, one that grows and is sustained by investment and an economic reciprocity between poor and wealthy nations that makes despotism a bad business.

    Aid inevitably finds the pockets of ruling class, investment finds the more politically and economically sound country, at least it should. If given the chance, many of the people of poor nations would exhibit the intellect and entrepreneurship that is obscured by broad assertions of their capabilities from the outside and the ineffective and indulgent “leadership” within. “Leaders” of underdeveloped nations sustain the “spiritual and intellectual problem” through coercion and the suppression of opportunity. Good business would be to make that bad business.

    Globalization is economic reciprocity – lite.

  25. John from Concord Says:

    John,

    peddle paper much? still think truncated Equations effectively model our fluid environment? always a big believer in continuous Liquidity? let’s guess, have a personal Shrine to VAR?
    ~~

    EAR,

    re: “I wonder if Taleb would have thought of that as an example?”

    as you know, one would have to ask him, though I’d wager he’d be in a similiar ballpark..

  26. EAR,

    see: “1820 Dec. 26. “The disease of liberty is catching; those armies will take it in the south, carry it thence to their own country, spread there the infection of revolution and representative government, and raise its people from the prone condition of brutes to the erect altitude of man.” (to Lafayette, Ford 12.190)

    1820 Oct. 20. “The boisterous sea of liberty is never without a wave.” (to Richard Rush, L&B.15.283)

    1826 Jun. 24. “The general spread of the light of science has already laid open to every view the palpable truth, that the mass of mankind has not been born with saddles on their backs, nor a favored few booted and spurred, ready to ride them legitimately, by the grace of God.” (to Roger Weightman, Writings 1517)
    http://monticello.org/reports/quotes/liberty.html

    though, what do you mean by: “Globalization is economic reciprocity – lite.”

  27. Winston Munn says:

    “Common sense is so rare among those commenting on our plight, nowadays, it almost looks like genius when we come across it.”

    @Marcus

    The measure of statesmanship is the ability to pass on common sense as policy.

  28. John from Concord says:

    Mark: None of the above. I just think the guy’s a blowhard.

  29. John from Concord says:

    Mark: To expound… my differences with Taleb are stylistic, not substantive, and thus I suspect that this list is more about setting up another round of “You stupid morons should have followed my advice!” five or ten years hence than it is about attempting to spur any actual action.

    That said, I’m a longtime fan of Kahneman, and supposedly he likes Taleb, so maybe he comes off better in person?

  30. Transor Z says:

    Susan Boyle: Black Swan or Ugly Duckling? Discuss.

  31. Steve Barry says:

    I started writing some boring comment…but glanced on my desk at the total credit to GDP chart…still rising at 370%…and I saw the elephant in the room. Giving one institution and one person (Greenspan) so much power will be the single idea that destroyed us. How he could let credit spiral so far above anything ever seen is beyond me. It should have been clear by 1990 that something was not right…the fact that it continues today is astounding. I imagine the depths we will hit will be equally astounding.

  32. John,

    thanks for fleshing that out. your reference to Kahneman should be illuminating.
    ref: http://www.princeton.edu/~kahneman/

    Most people have never heard him, Kahneman. I think part of Taleb’s, public, delivery is to make up for that, sad, fact, and is, additionally, measured to a population that has been weaned on sound-bites and top-10 lists.

    LSS: someone has to the carry the Water..

    much like this Man: http://www.youtube.com/watch?v=oCP7FaYejYg&feature=channel

    or this one: Thomas Paine: “If there must be trouble, let it be in my day, that my child may have peace.”

  33. EAR says:

    MEH,

    Substantive lightning…

    If one of us cheated the other in a saloon card game I think I’d be the one who’d be buried in his spurred boots.

    Globalization is the status quo result of technological advancements in transportation and communication. The drive behind it are the same shallow and fleeting rewards that have now mostly evaporated and always tend to due to today’s wanton concept of “risk.” Whether it be financial concepts or instruments, the vision usually ceases at the initiation of the project or the finishing of the product. Once it is applied, it’s business as usual.

    True economic reciprocity would involve the discarding of G20s and BRICs and commencing business according to mutual opportunity. Microfinance is an example that many would use but for a true shift there has to be a more expanded involvement of capital markets. Infrastructure funds, utility ETFs, GDRs, regional market consolidation, privatization, etc… ideas.

    On the other side, the flow of capital must be like a stream of acid as the “leaders” of the poorer nations are concerned. They should expect nothing more than to be praised for bringing financial innovation to their countries, if there are signs that they are directing funds meant to flow to their economies to themselves the funds cease. Knowing the relentless avarice of their kind this will happen, but I think the worst offenders would eventually find themselves isolated as more proactive countries around them thrive. Despotism would be a hard sell in this kind of environment.

    A guy can dream, right?

  34. bman says:

    #9 sounds like an interesting point of view, and totally orthogonal to most common retirement scenarios…

    @InvestorinPA: Your suggestions are contrary to #3.

  35. moneyneversleepsblog says:

    @transor z

    Susan Boyle – ugly black swan, you have to wonder how many people are out there unnoticed with some unbelievable gifts and talents… we could use a few in the financial industry…

    http://moneyneversleepsblog.blogspot.com/2009/04/positive-side-of-black-swan.html

  36. Stuart says:

    Jesus,… is there a single one of those rules that we didn’t end up violating….

  37. some_guy_in_a_cube says:

    Taleb’s ideas are a complete and total repudiation of elite and establishment policy, which means they have no chance of ever seeing the light of day.

  38. Rich_Lather says:

    (#7) Government isn’t running a ponzi scheme? I sure thought it was…nevermind, then.

  39. PerpetualWar4PerpetualPeace says:

    You guys are way too pessimistic. Don’t you know that it’s always darkest right before it goes pitch black? On second thought, I am going to exit all my long positions when the market opens.

    PerpetuallyPerplexed

  40. franklin411 says:

    @someguy
    Don’t mistake pipe dreams for actual ideas.

  41. Mannwich says:

    Hhhmm, this sounds a bit like psuedo-nationalization on the horizon…..

    http://www.nytimes.com/2009/04/20/business/20bailout.html?hp

  42. Stuart says:

    Sort of related….. Janet Tavakoli on meltdown. Outstanding video and recommended viewing.

    http://www.q-and-a.org/Video/?ProgramID=1228

  43. re: Kahneman,

    “…Kahneman and Tversky demonstrated, however, after many experiments done over many years, that individuals are irrational. Not only are they irrational, it’s even possible to predict the irrational manner in which they will make economic decisions. Kahneman and Tversky found that people do not gather data in a systematic or statistical way, but usually make economic decisions based on “rules of thumb” – heuristics, to borrow the term they used.

    For example, let’s take two groups of people and ask the first if the tallest tree in the world is taller than 300 meters. Then let’s ask them how tall the tallest tree in the world is. Then we repeat the exercise with the second group, asking them whether the tallest tree in the world is taller than 200 meters, and then how tall it is. At the end of the experiment, we find that the first group’s average answer to the second question is, around 300 meters, and the second’s is around 200 meters.

    Why? Kahneman and Tversky say this is “anchoring”: People tend to latch on to a certain “anchor” – usually one they come across by chance – instead of trying to use a more rational way to gather and process data and make economic decisions.

    My second encounter with Kahneman came at a meeting of the World Economic Forum, in New York, in 2002. I spotted his name on the list of speakers and sent him an e-mail requesting an interview. He replied, “You must be mistaken. I am a professor of psychology, of no interest to anyone.” Only after I insisted I knew exactly whom I was addressing, and that I remembered quite well his theory from my economics studies, did he agree to speak with me.

    That year Kahneman won the Nobel Prize in Economics; overnight, he became an international star, constantly quoted and cited. Today his theory of irrational decision making is considered an integral part of any discussion about economics….”
    http://www.haaretz.com/hasen/spages/1077151.html
    from:
    http://zerohedge.blogspot.com/2009/04/overallotment-april-19.html

  44. danm says:

    I all sounds fine and dandy but it just seems like utopia to me. We can’t even agree on who is to blame for the mess and even less on how to fix it. How are we going to decide what the perfect mix of simplicity vs. complexity is?

    We might complain about the faillablily of our economic system but its complexity has permitted us to grow to 6 billion on this planet. Take the complexity away and we will not have the intermediary jobs that give us the quality of life we enjoy over that of the middle ages. This less than perfect economic system gave us specialization. Take it away and 90% of us will be farming

    It’s not that I don’t believe in a better way. It’s just that I don’t think we can wittingly make it simpler. Simplicity will be forced on us with great pain.

  45. dead hobo says:

    BoA just announced and they did pretty well. Unlike GS and C where gimmicks were used to turn dismal performances into banner reports, BoA appeared to do it by working it’s ass off. Unless something nefarious is hidden in their statement, then, finally, we have one good set of bank financials. I don’t think one bank doing well is enough to call an end to the recession, or a bottom to the market. But the next run up has potential of having substance behind it. This one is spent.

  46. Bruce N Tennessee says:

    There are things that can be done that aren’t mentioned..at the risk of sounding like a one note pony a balanced budget amendment to the constitution is the ONE idea that should be placed right now…why?

    It prevents our government from spending more than it brings it…(duh! Bruce are you ok?) Yep, and the reason this is so important is that now after many decades of deficit spending, we see that this debt and the pressure to continue to spend more than government brings in causes the distortions in the market. How is that manifest?

    Interest rates are forced lower, because increasing debt naturally tends to force rates higher. Now the Fed is printing money, and most here see this will end badly.

    A few (Greenspan and the post- tech bubble fed) due to their power over interest rates, foolishly cut rates too low for too long. There was little or no chance of deflation at that time, but rates were cut and held with the distortion consequences put off a few years…

    Eventually our national debt reaches the level where default becomes a possibility. Countries that own our debt become uneasy, and we change our economic focus to pacify these fears. Had we not created the debt in the first place, this consequence never would have occured.

    The debt, if not in default, results in higher tax rates on individuals and corportations. The debt must be repaid.

    Pork barrel spending would be dramatically reduced, if not eliminated…

    In sum, folks, our national government would run itself better if it only spent what it brought in…if we don’t fix it now, then when do we do it? And is there one better idea to start with than this one?

  47. dead hobo says:

    About the theme of this thread: Black Swans …

    They will never go away. People are basically stupid and Black Swans usually arrive due to the combined effects of mass stupidity, which utterly surprises the stupid people who caused the event. (Assuming away meteor strikes and the like). You can’t legislate brains and thieves will always be among us. The stupid will follow the thieves anywhere if they have a good enough story. The best you can do is dampen the effects temporarily.

  48. “Take the complexity away and we will not have the intermediary jobs that give us the quality of life we enjoy…”

    danm,

    care to hazard a guess of how many 100s of Trillions of U$D the Aggregate Balance Sheets of the various OECD ‘governments’ are Off-Sides/Un-/Under-funded?

    hint: the US, alone, is ~60+Trn in the hole, and W. Europe+Japan have similiar ‘over-promised’ nightmares for their own accounts..

    the vaunted ‘quality of life’ you speak so highly of, has been lifted, Wholesale, from the Future.

    remember: What Is Seen and What Is Not Seen**

    1.1In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

    1.2There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen. …
    http://www.econlib.org/library/Bastiat/basEss1.html

  49. Bruce,

    “The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale”

    “…If, then, the control of the people over the organs of their government be the measure of its republicanism, and I confess I know no other measure, it must be agreed that our governments have much less of republicanism than ought to have been expected; in other words, that the people have less regular control over their agents than their rights and their interest require. And this I ascribe, not to any want of republican dispositions in those who formed these constitutions but to a submission of true principle to European authorities, to speculators on government, whose fears of the people have been inspired by the populace of their own great cities, and were unjustly entertained against the independent, the happy, and, therefore, orderly citizens of the United States.

    Much I apprehend that the golden moment is past for reforming these heresies. The functionaries of public power rarely strengthen in their dispositions to abridge it, and an unorganized call for timely amendment is not likely to prevail against an unorganized opposition to it. We are always told that things are going on well; why change them? “Chi sta bene, non si muove,” says the Italian, “let him who stands well, stand still.” This is true; and I verily believe they would go on well with us under an absolute monarch, while our present character remains, of order, industry, and love of peace, and restrained, as he would be, by the proper spirit of the people. But it is while it remains such, we should provide against the consequences of its deterioration. And let us rest in the hope that it will yet be done, and spare ourselves the pain of evils which may never happen.

    On this view of the import of the term “republic,” instead of saying, as has been said, “that it may mean anything or nothing,” we may say with truth and meaning that governments are more or less republican, as they have more or less of the element of popular election and control in their composition; and believing, as I do, that the mass of the citizens is the safest depository of their own rights, and especially, that the evils flowing from the duperies of the people are less injurious than those from the egoism of their agents, I am a friend to that composition of government which has in it the most of this ingredient. And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”
    http://www.britannica.com/presidents/article-9116907

  50. danm says:

    the vaunted ‘quality of life’ you speak so highly of, has been lifted, Wholesale, from the Future.
    —————————-
    I agree but it’s still palpable. Thew creature comforts are real. Will they be there in 10-20 years, that’s another issue. I think they will be there but I don’t think they will be available to as many people.

    To keep our quality of life up, we would need a huge psychologicial shift. We would need to start valuing services more than goods. But I don’t think it’s in our human nature.

    I look around my neighborhood and realistically there is no way the material world around me is going to get better over the next couple of decades. I’m surrounded by boomers and overleveraged Gen-X ers. We’ve just gone through the best 2-3 decades materialism could buy and people plunked thousands in quickly depreciating assets (cars, tvs, clothes…) instead of fixing the infrastructure that would guarantee them a better future. I find it sad that we let people build ever bigger houses when there is proof that over the long term people can’t maintain them adequately. In my neighborhood the smaller houses are well groomed. Usually all the windows are redone while in the larger ones only the front ones are done.

    We’ve been building bigger and bigger when revenues will be getting smaller. Do you think the retired boomer with 30-40K and still paying off a mortgage will be plunking 10K on landscaping?

    And it’s not just financial, it’s environmental. We need China to grow for us to do better. But do we really want to share resources with them when we have so much maintenance of our own to do?

    Our economic system has always been all about exploiting some group. For the last 20 years it’s been about exploiting workers in emerging markets. But I’m not sure how much longer that will last.

    And we are stretching the limits of deforestation and water pollution.

    Like I said, the simplicity will be forced on us.

  51. R. Timm says:

    Danm and a lot of other commenters sound a lot like Thomas Malthus who claimed that population growth would cause widespread famine. The answer to our financial, environmental, and economic problems will stem from technological progress. Our technological advancements over the past 100 years have revolutionized our way of life and greatly improved our standard of living. Nearly all of these revolutionary technological accomplishments have been a result of US governmnet investment (computers, internet, nuclear power, satellite comms, cell phones, most pharmaceuticals etc.)

    I am confident that we will have as revolutionary advancements over the next decades. These may come in the form of bacteria that turn trash into fuel, Algea that eat c02 and create hydrocarbons, or nuclear fusion type fuel sources (see last nights 60 minutes) http://www.cbsnews.com/stories/2009/04/17/60minutes/main4952167.shtml

    The blog commenters here have been too content to dwell on just credit creation and destruction or inflation / deflation. There is a whole world out there of poeple doing remarkable things that will cause revolutionary changes and enable us to not only pay our debts but to proper in the future.

  52. dead hobo says:

    Props to David Faber on CNBC for breaking down the BoA financials. He described it as less than banner. The report noted distinct weakness in banking activities and 2 large gains that were substantially all of reported net income. He also referred to C earnings as a loss if you remove the odd items that bumped it up. Congrats, again.

    In comparison to the C and GS, this is still an excellent report, event though it shows depressing financial weakness. Profits were light, but the large gains had much less appearance of gimmick than the other banks. I think I’m reacting to the unexpected degree of higher integrity in financial reporting than the bottom line. It’s terrible that a little unexpected honesty is taken as surprising and impressive news.

  53. R Timm,

    don’t misunderstand, I’m a dyed-in-the-wool believer in Human Action, and the cornucopia of Treasure it, unfettered, will fruit.

    that said, the Gulag Archipelago wasn’t a hot-bed, dare I say pebble-bed(?), of “Technological Innovations”.

    Sorry, but there’s a Huge Disconnect between Command-and-Control and Creativity.

    If you would, say more re: “result of US governmnet investment (computers, internet, nuclear power, satellite comms, cell phones, most pharmaceuticals etc.)”

    Something tells me we may have been reading different Intercepts of those *Historical narratives..

  54. danm says:

    R. Timm:

    Was Malthus wrong? I don’t think so. Everybody focuses on the just-in-time consequences. Before the Europeans colonized America, the natives would populate an area and deplete the soil. You’d always see population grow until it peaked and this peak usually coincided with the depletion of nutrients in the soil. At one point, the natives would need to move on to new land. This cycle could take up to a couple hundred years.

    When the Europeans moved in, they just razed the area and moved out more and more west. The anglo-saxon way of life is based on a total disregard for the environment. It works because it uses multi-million years of stored energy for maximum short term output (imagine agriculture with less oil) . And as long as there are resources to exploit, that system will work.

    The problem is that this system has built up a huge level of entropy. It needs a lot of energy to maintain itself, never mind the growth… and oil is getting harder and harder to find. You could argue all you want about alternative energy, but apart from nuclear, not many are as powerful as oil.

    Perhaps it can go on for some time still but I think the Malthus principle will rule. Look at the devastation we have done for a few hundred million to live in luxury. I can only imagine what it will be like with a few billion. Especially when you consider that people are intrinsically attracted to things that are scarce. As species or resources become more scarce, people are going to hoard or desire them even more.

    When you ask the scientists, they themselves are the most skeptical about generating technological advances in time to save us from ourselves. I find this optimism usually comes from the MBA types.

    I believe in being optimistic but I don’t believe in the American definition of optimism. Optimism for me isn’t about believing that everything will be all right or better. Optimism for me is about believing that I will find the strength to see the beauty in life whatever situation I find myself in.

  55. danm says:

    Also apparently Malthus made no specific prediction regarding the future. He did not set a date, he just said that populations always peak out.

    I think our constraint will be oil.

  56. danm says:

    Oh… and when a country is a net importer of resources and energy, it’s kind of a bad sign.

  57. danm,

    w/this: “(imagine agriculture with less oil)”

    see: http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=permaculture

    and, remember, “Peak Oil” is a Hoax.

  58. danm says:

    MEH:

    Call me skeptical, permaculture is great but I don’t think it can work with 6 billion people doing it. Not enough fertile land. Tough weather. That’s the reason why the Vikings started invading other villages.

    In my mind, the closest we come to living in symbiosis with nature, the less human beings we can be.

    Started with horsepower, coal followed and then oil. I still think oil is what permitted us to get to 6 billion. I might not adhere to Peak Oil but I do think there will be a fight for oil. Not sure how long the US can keep on being net a importer of this black gold. And if it chooses protectionism, like it has done in the past, I expect some sparks.

  59. danm,

    sorry if I was unclear, “Peak Oil” Is a Hoax.

    we have more Oil&Gas w/in our territorial boundaries than we know what to do with, just listen for the clamor on Wednesday..

  60. Marc1 says:

    8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is denial.

    The question is whether the leverage addict is the iBanks or the U.S. economy.

    I think it’s both. Isn’t this really a codependency?

  61. danm says:

    sorry if I was unclear, “Peak Oil” Is a Hoax.

    we have more Oil&Gas w/in our territorial boundaries than we know what to do with, just listen for the clamor on Wednesday..

    —————–
    I understood you and I also think there is still a lot of oil out there but at what price/cost?

    Imagine the changes we must go through to get to a sustainable 150$ per barrel. The entire economy will need to tranfrom itself. Ouch! Or the environmental damage to get to it. Or the water needed to keep pressure in the fields.

    My problem with perma-bulls is that historical growth is proof that we can do it. Their arguments always eclipse the human suffering of millions to get to this growth. Their logic is that if we got to 6 billion people, it’s because we’re doing something right. Of course they don’t look at the suffering and the holocausts along the way that got us here.

    I just don’t see an easy time ahead. I’m very optimistic for the future… but lots a human casualties ahead despite technological advancements.

  62. R. Timm says:

    Danm- I appreicate the replies. There is no gaurantee that we’ll find the technology to continually increase our standard of living but there are plenty of opportunities. We produce far more agriculture in the US on far less land than in recent history. There is plenty of unused land available for agricultural uses as even with 300M people the US has a very low population density. Our cars pollute 95% less than in the 1970s so eventhough we have more than twice as many cars in aggregate there is far less polution from them. I see no reasonble rationale for expecting these remarkable changes to slow or reverse. If anything the pace of our technological progress has continued to increase.

    I’ve been short the market again since last Thursday (a bit early as usual) and am just now a bit above break even on my SDS. I’m short term negative on stocks and think this was a bear market rally but I am long term bullish on human progress. We can solve many of our economic and environmental problems if we continue to invest in new technologies and do not allow entrenched interests to continue the status quo. It doesn’t much matter if it is DARPA, NIH, grants to universities, or VC that is doing the investing so long as we are making the investments in basic research.

  63. danm,

    I hear your point, though, see: “We can solve many of our economic and environmental problems if we continue to invest in new technologies and do not allow entrenched interests to continue the status quo.”

    and an edit thereof: “We can solve most of our Economic problems by allowing more of what we, already, know to be shaken out–”into the wild”. Many of our current Problems are directly attributable to various entrenched interests and their perpetuation of the status quo.”