Davos and the Spectre of David Hume

This year’s just-completed World Economic Forum at Davos had as its theme ‘resilient dynamics’. According to its executive chairman, Klaus Schwob, ‘resiliency in the ability to adapt to changing circumstances and withstand sudden shocks,’ while ‘dynamism’ is required as well, to assure future growth through ‘bold vision and even bolder action.’ Don Tapscott, a Canadian economist and business guru, who has been a gratingly cheery booster of the Davos meetings for years, also brought the news to readers of the Globe & Mail that what began as only a series of meetings has now evolved into ‘a massive research organization’, a ‘do-tank’.

2,500 participants from over 100 countries came to Davos this January: government and corporate leaders, economists, and wealthy world-improving entertainers like Bono. Almost all of them were provided with a great deal of comfortable personal insulation from ‘sudden shocks’ of any kind, and many were also accustomed to being generously compensated for producing lots of bold visions; Paul Krugman provides one every month or two in his NY Times columns, and the megabankers can be counted on as often for clever new derivatives. Tapscott argued that Davos remained ‘the foremost creative force for engaging leaders in collaborative activities focused on shaping the global, regional, and industry agendas.’ This may very well be true, but over a decade after 9/11 and five years after the World Crash, the Davos assembly, which still observes the pious reverence for economic forecasting that existed two decades ago, resembles a conference of men’s hat makers, congratulating each other on their new plastic bowlers.

Of course, discussions and papers gave solemn attention to tottering banks and flowering sovereign debts, but nothing really much disturbed the equanimity of this new in-crowd as they inhaled the brisk Swiss mountain air. Since 2006 the Forum has released an annual ‘Global Risks Report’, examining 50 global risks in terms of ‘impact, likelihood, and the extent to which they are connected’, based on a survey of ‘more than 1000 experts from industry, government and academia’. And how could 1000 such experts be wrong? Indeed, a special report on ‘national resilience’ proposed that countries could be assigned a ‘resilience rating’, with annual reports of this kind of progress. There is also a year-round WEF working group, of which Tapscott proudly claims membership, ‘that includes many of the world’s leading thinkers about global governance’, excited by ‘new non-state networks of civil society’, addressing ‘every conceivable issue facing humanity’. The group is ‘trying to understand their potential for improving the state of the world’, which should keep them busily occupied for some time.

Although ‘resilience’ has now been around for a decade as an economists’ buzzword, it is just possible that this year’s Davos theme was a vague nod of sorts to the heretical arguments about statistics and forecasting made in recent years by gifted ‘outliers’ like Nassim Nicholas Taleb and Nate Silver. Neither of these are mere flavour-of-the month popular pundits in the manner of Malcolm Gladwell or the authors of Freakonomics. In fact, both are presenting their own kind of fresh versions of an old, powerful, and very alarming philosophical position.

Silver, who trumped all more conventional political pundits by accurately predicting, state-by-state, the results in both of the last two American Presidential elections, has already had an enthusiastic reception for his new book, The Signal and the Noise. He is not so much a grand theorist as an individual who understands how to analyze statistics with a special personal skill, this in itself casting great doubts on the validity of purely standardized statistical models.. Taleb is a great deal more egomaniacal and bombastic, but while he can sometimes be irritating, especially in his latest book, Antifragile, he has something important to say, as he did in his previous books, Fooled by Randomness (2001) and The Black Swan (2007). The latter book was a best-seller and a public sensation, at least in the business and financial worlds. He had already become a recognized financial guru; as a onetime options trader on Wall Street, he not only saw in advance the likelihood of the 2008 Crash, but placed, to use a favourite expression of his, ‘skin in the game’, shorting the collapsing real estate derivatives early enough to make himself some tens of millions of dollars. He has not repeated this success, but can now afford quite a few more modest plunges.

But then his whole argument against academic economists, statisticians and Wall Street rocket scientists is that neither he nor anyone else can predict the future at all, since stunningly unexpected ‘Black Swans’ are not just very rare exceptions, but frequent enough to ruin all persuasive-looking futurology. This is not a new idea; it was classically demonstrated by David Hume over two centuries ago, and Taleb also explicitly acknowledges his debt to two great Hume-influenced sceptical thinkers of the 20th century, Friedrich Hayek and Karl Popper. But just as it used to be said that many of the purely philosophical arguments advanced by Nietzsche had been made earlier by Hume, Nietzsche differing mainly by yelling them at the top of his voice, Taleb has a similar method in his madness. Hume not only undermined traditional notions of causality, but was just as devastatingly sceptical about the limits of confining study to ‘relations’ instead, these including the statistical ones that have become more and more universal today. He turned his own empirical reasoning against even itself, so thoroughly that ambitious futurists have been averting their eyes from this terrifying Scot ever since.

Hume, Bertrand Russell, and Taleb are all fond of pointing out the flaw in the reasoning of an empiricist turkey. The turkey becomes accustomed to the daily appearance of the farmer with food, and hence experiences an unpleasant surprise one day when the farmer arrives with the sharp blade that will soon convert the turkey into someone’s dinner. Even a turkey who has observed another turkey’s misfortune can not predict when the blade will replace his own meal. Taleb’s own prescription for business, financial, and political action is, behind the bombast, a highly conservative one, recommending the cautious use of rules of thumb and a spirit of trial and error. Hence he is full of loathing for most academic economists, and for bankers inventing financial models whose failure does not affect them because they have ‘no skin in the game’. He suggests that it would have improved the body politic to behead a few such bankers on the pavement outside their ATMs, an idea unlikely to be well-received at Davos even as a joke.

In his new book, he insists on the utility, even the necessity, of his ‘antifragile’ neologism, which he argues, using several examples from a wide range of human activities, is not simply a synonym for ‘robust’ or ‘resilient’, but has a special and different meaning: a kind of thinking and action which can actually find benefits in turbulence and volatility. Not, of course, as an exact science; for Taleb, in all empirical experience, there is no exact science, certainly not in academic economics or the design of Wall Street investments. But he thinks there are sometimes real-life counterparts of the mythological Hydra, which sprouted two new heads every time one was cut off. The Hydra-like, in his view, include weightlifters, Mafiosi, entrepreneurs, street fighters, and the author of Antifragile. He likes bottom-up, diversified, and small enterprises, allowing uncatastrophic withdrawal when things go wrong.

Taleb is nonetheless willing to be grand enough in his own level of epistemological ambition. Arguing less about specifically statistical reasoning in his new book than in the previous two, he turns to the very founding arguments of Greek philosophy. In the 1930s. Karl Popper attacked ‘the spell of Plato’ as the first ancestor of the totalitarian thought and politics of his time. Taleb goes after Plato somewhat differently. Noting that The Republic opens with an attack on merchants and money lenders, Taleb takes the side of these moneymakers. But he remains like Popper in recognizing the permanent utopian attraction of a top-down rule of enlightened philosopher-king guardians. At least Plato’s were supposed to be schooled in wisdom, not just in knowledge, much less in data. Taleb is offering more insight to the world than it is likely to obtain from all 1000 of the Davos-selected ‘experts from industry, government, and academia’. The world may even come to prefer his shouted wisdom to the bland and optimistic annual groupthink counsel from Switzerland.

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