I’ve made the point before that I believe that it’s the economists who deserve the bulk of the blame for the current crisis, those practitioners of the black arts in the Federal Reserve and in our major financial institutions are the ones with the blood red ink on their hands. The finger-wagging across from Republican to Democrat and back again is largely pathetic when faced with a disaster that was largely bipartisan. I mean every regulatory failure on the Republican side was met with a legislative failure on the Democratic side.
Now I can point to a learned essay that points out how the occult masters of the economy were feeding our government (both parties) a steaming shit sandwich for the past dozen years or so. Nassim Nicholas Taleb writes for the Edge website (via Futurismic) an article on what in the best case is willful ignorance and in the worst case statistical malpractice:
Statistical and applied probabilistic knowledge is the core of knowledge; statistics is what tells you if something is true, false, or merely anecdotal; it is the “logic of science”; it is the instrument of risk-taking; it is the applied tools of epistemology; you can’t be a modern intellectual and not think probabilistically—but… let’s not be suckers. The problem is much more complicated than it seems to the casual, mechanistic user who picked it up in graduate school. Statistics can fool you. In fact it is fooling your government right now. It can even bankrupt the system (let’s face it: use of probabilistic methods for the estimation of risks did just blow up the banking system).
It is a dense article, but I can boil it down to a simple takeaway truth: Our economic leaders were in the position of a guy who doesn’t bother with a prostate exam because he’s lived the last forty years and didn’t get cancer, so it seems likely that he’ll go another forty years without having to worry about it. (If you don’t see this absurdist view in our current government, you didn’t read my post on failure of imagination.)
As a bonus, I liked these guys from my last post so much that I have a dedication for the folks who got us into this mess in the first place:
1 Comment
steve buchheit · October 1, 2008 at 2:40 pm
Sadistic Statistics is what we used to call it. I think the misuse of statistical analysis comes form a basic fault in straight line thinking (if you only acquire two points, you can draw a straight line that shows what you want it to).
Also, most people miss that it’s not the Dow that is most important. It’s the overnight credit market (harder to follow as there is no marketing for it). All the indices I can get a hold of show interest rates are going up as credit tightens up. The spice (credit) is having problems flowing these days.
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