Black Swans, Complexity, And Government Intervention
Black swans really didn’t swim into global consciousness until the late summer of 2008 when the frazzled pieces of the global economy completely frayed, like the rope holding a piano dangling above a busy city street in an old silent film.
But, Nassim Taleb had spotted the creature in 2007, writing about how sudden, outlying events affect the financial markets in Black Swan, the Impact of the Highly Improbable. He mentions September 11 and stock market crashes as Black Swan-type events.
Whether any of the events were truly unpredictable–or just extremely complex, isn’t the point of this piece. What intrigues me now is, if we accept the premise that a Black Swan is unpredictable, can a reverse Black Swan be created?
In other worlds, if a series of seemingly random and unconnected events are behind a stock market crash, it would be foolhardy to believe that a group of government officials could somehow engineer a stock market rally.
This seems to be the goals of a flurry of government initiatives, taxes, bills, and programs–from cap and trade policies to internet affiliate taxes.
If you take the Black Swan concept to heart, the sum total of these interventions could not–and will not–lead to a strong economic recovery. Complexity will not be coerced. And these programs only add uncertainty into the system and tempt the law of unintended consequences to enact itself with the stiffest of penalties.
Rather than futile attempts to manipulate complexity–the vast interconnected network of economic, financial, and social causes–a better path would be to master simplicity. If Black Swan events happen occasionally, what simple conditions create economic well-being for long stretches of prosperity?
Low interest rates, low tax rates, and controlled government spending are key to long-term economic growth. Granted, this will not eliminate sudden, economic downturns that can actually be beneficial by acting like a pressure release valve. However, growth during most years will offset the drops during Black Swan economic events.
The best course, then, is to not focus on Black Swans, but concentrate on feeding and aiding the vast population of White Swans in the flock.
Related posts:
- When You See The Black Swan, Ride It
- Was Yesterday a Black Swan Event?
- Government: Is The Next Bubble Already Forming?
- Fooled by Complexity: A Black and White Swan Theory
- Do You Expect the Government to be Frugal? Really?
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is one of my favorite financial books of all time. It's an allegory about a guy who has a terrible job, and how he overcomes challenges to achieve his dreams.
