Chris Dillow writes on Nassim Nicholas Taleb of Black Swan fame:
But this isn't because Taleb had any great insights into the nature of risk. It's because he thought banks' risk managers were idiots, whilst economists didn't think so - not even me. In doing this, however, we were just following economists' standard procedure - of assuming that agents were if not rational then at least not wholly stupid. For me, all this is very troubling. It suggests that what we economists have to learn from Taleb has nothing to do with the nature of risk - we've all known that - but about others' rationality. We should ditch the assumption - which in a sense is mere courtesy - not only that others are rational but even the weaker assumption that they are nearly so. Perhaps we should indeed regard them merely as "empty suits."Vs the rationality of irrationality:
Basically, there is some amount of irrationality in the system, but over time, as more and more people seem to be making money against the irrationality, more and more explanations are made for why that irrationality is actually rational. And since the irrational activity goes on for so long, it becomes nearly impossible for most people to really believe that things are so irrational. So, it's not that there's anyone who did anything wrong that needs to be blamed, so much as we need to blame ourselves, for not taking enough time to recognize that what seems irrational in the beginning actually is irrational.And we are left with the only good thing coming out of a bubble is an excess of capacity in some kind of infrastructure; which in this case seems to be car making capacity and banks. Which we are now propping up with taxpayer money. Color me unimpressed.
