Seeing the Apocalypse Fractally

Here's an interview with Nasim Nicholas Taleb and Benoit Mandelbrot. They warn that the future will be worse than we can imagine...



I get tired of these stories. When times are good, all we hear are talking heads telling us that things can only get better. When times are bad, we hear a different set of talking heads telling us that things can only get worse. I don't listen. The press is not forecasting, they are feeding our manias.

I'm not saying that these guys aren't smart. They are. But trotting them out now is silly. They don't add any understanding. In fact, they feed the current fascination with gloom and doom.

One of the dumbest things I heard was Taleb saying something to the effect "a small excess of demand can cause oil to go from $20/barrel to $150/barrel". This is nutty. For a completely inelastic good, this would be true. But oil has some elasticity, so an increase in price cuts demand. The proof is all around us in 2008 as gasoline in the US hit $4/gallon. What we now know is that the $150/barrel of oil was in fact due mostly to speculation because the fast collapse in price occurred in Sept/Oct 2008 as hedge funds unwound their positions. This was not "demand pushing prices up or lack of demand bringing them down". This was bubbles and the bursting of bubbles.

When I hear Taleb say "I wake up at night for the past couple of weeks hoping that I'm wrong. I think we may be experiencing something that is vastly worse than we think it is." Nutty! He is claiming that we are so "networked" today that a little cause over here can cause collapses over there. Nutty!

I respect these guys, but they should not be trotting out on stage to speculate so wildly. It does them a dishonour.