Polymath book club

Here are three terrific books I’ve been reading, which I’m alerting you to so you can enjoy and participate in my upcoming discussions of them (the actual discussions won’t be for a few days at least). If you’ve read any of these already don’t wait until then, please comment here.


The Rational Optimist: How Prosperity Evolves

Government getting bigger and worse is tolerated as long as wealth increases even faster than taxes so people are still better off. Although recently this condition became false, resulting in the current political upheavals, in the long run things really are getting better, technological and economic advances have become self-sustaining on a worldwide scale despite setbacks in individual countries. This book explains why.


This Time Is Different: Eight Centuries of Financial Folly

The most complete analysis ever of financial crises, panics, and insanity.


The Bed of Procrustes: Philosophical and Practical Aphorisms

Nassim Nicholas Taleb is one of my heroes, and everyone should explore his website. I’ll have a lot more to say about him. His criticisms of the fatally flawed “Value at Risk” financial models in the mid-90’s, and his predictions of the ensuing disasters, were a factor in my quitting Wall Street, but he was ignored for reasons that, it was obvious to me at the time, were self-serving and bogus. His writings are amazingly original.

One of his suggestions I like is for structuring your charitable giving: set aside a fund at the beginning of the year for charities and misfortunes. Any bad luck or unfortunate occurrence that costs you money (you are robbed, you get an expensive traffic ticket, your kid breaks someone’s expensive appliance, etc.) comes out of the fund, and at the end of the year you give the rest to your favorite charity. That way none of the misfortunes ever bother you because you aren’t materially any worse off, and it’s not really unfair to anybody to give less to charity when you can afford less. (If it is a religious charity, you could also look at it as giving thanks for your good luck by giving more at the end of good years.)

Here is a recent article about his influence:
Hedge Funds Pile Into Doomsday Trade

And here is a short interview:
10 Questions for Nassim Taleb

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16 Responses to Polymath book club

  1. Polymath says:

    Related to the first of these books, two more links about long-term reasons for optimism:

    Innovation Is the Thing

    And an awesome video:

    Hans Rosling’s 200 Countries, 200 Years, 4 Minutes – The Joy of Stats – BBC Four

  2. The premises of the first book are false. They’d be true if America actually financed its government and didn’t have the rest of the world doing it, for one. And secondly, there’s no point in working just to feed other people.

  3. Polymath says:

    Did you read the book? It is about a worldwide phenomenon. He makes the point that when it stops happening in one country another one picks up the torch. America is losing its technological and economic leadership, but places like China are advancing rapidly. I don’t know what “premises” you are referring to.

  4. rebelliousvanilla says:

    In America, wealth didn’t increase in the last 25 years. Americans have been considerably getting poorer in the last 10 years, to begin with. The only reason why the growth of government is tolerated there is the ethnic cleansing you’ve been doing for the last 50 years or so. And due to other factors, but this was probably the biggest one.

    The premises of the book are flawed because in the Western world, wealth didn’t increase in the last couple of decades, overall, while governments did. The other premise is that people are better off. And I didn’t read your book, I criticize what you said.

  5. Polymath says:

    They have been getting poorer in the last 10 years but that was disguised by the bubbles, and now that it is undeniable they ARE getting angry at the government, so that doesn’t really refute my point. Also wealth DID increase over 25 years if you count it the right way — computers and the Internet make everyone much better off for example, technology has given a typical person today capabilities that only a small minority had 25 years ago, food is cheaper than 25 years ago, and so on.

    Also you got my logic backwards. I said that as long as people are getting richer they tolerate bigger and worse government. That does not mean when they are getting poorer they never tolerate it, it’s not an if-and-only-if, it means that not getting richer is a necessary condition not a sufficient condition for anger at the government, therefore that the response to getting poorer has not been an immediate overthrow doesn’t refute me. You’ve pointed this out yourself, the ruler’s best way to avoid dissatisfaction is to keep the people prospering.

    There is one way in which I am wrong: in extremely tyrannical countries, revolutions occur after there have been cracks in the system and things have started getting better because the people get encouraged that they can do it; for normal countries though, if people are getting richer they don’t want to rock the boat.

    Anyway, as I said, this is a global perspective, it’s true in general worldwide and the book is mainly about how the growth of wealth is inevitable on a global scale.

  6. Polymath says:

    Here is an interview with the author of the first book (1st of 5 parts, the other parts will appear day by day through Friday):

    Rational Optimism with Matt Ridley: Chapter 1 of 5

  7. rebelliousvanilla says:

    C’mon, you know more economics than this. Temporary low food prices are irrelevant to how wealthy people are. The way I see it, the US is the largest debtor in the world and it has no savings combined with a current huge current account deficit. The USD also declined by like 50% of its value in the last couple of decades. So how did Americans get richer? Wealth is represented by the assets that you own, not some temporary prices. I suppose that you’d say I got wealthy if I mortgaged my parents’ house and bought a Ferrari.

  8. Polymath says:

    OK, substitute “perceived prosperity” for “wealth” then since people did think things were good while the bubbles were inflating.

  9. rebelliousvanilla says:

    I disagree with you again. In order to sustain the same level of living as a family in the 1970s, now you need two incomes. Back then, you needed one. The whole thing is a huge joke.

  10. Polymath says:

    I lived here in the 70’s. You’re not comparing things correctly. Compared to today, cars were crappy, houses were smaller, food was a bigger fraction of the budget, there was a lot less of different kinds of stuff in the stores, entertainment was more limited, health care was worse (not in terms of quality of experience, but in terms of health outcomes), appliances were much more expensive, and the general friction of conducting daily business was higher because of very limited computerization.

    It was still quite nice in objective terms, but the 25th percentile person today lives like the 75th percentile person did then, or even better if you count the Internet and cell phones etc as making things better. Today you may need two incomes to make it into the 75th percentile, but on 1 income now you can still do a lot better than you could then in objective terms.

    This is a confusing point. The distribution has shifted so that the bulk of it is quite a bit better off, even though it’s easy to find families now that don’t live any better than families in the 70’s did — they’re just much further to the left on the curve now.

  11. rebelliousvanilla says:

    Polymath, I am comparing things correctly. The average wage in America is about $60,000. Try keeping a family of four with that wage, while sending your children to college(and education didn’t get much better), while having a savings rate of about 10% per year. I won’t even bring up how overvalued the currency in which that wage is earned is. Everything that works in the service sector and has skills that can’t be exported will experience a dramatic collapse in living standards.

    Your point is the equivalent of saying that we would accept a government that spends 99% of our earnings because we still live better than the Romans did. Just look at how life expectancy and how flashy our gadgets are compared to then. Give me a break.

    And what you say about healthcare is amusing considering that now healthcare is far less affordable than then and the life expectancy went up by only 6 years.

  12. PA says:

    If there were a parallel 1970 America and I was fairly convinced it will stay that way for a while, I’d defect there and become like Yakoff Smirnoff in the 80s, making merciless fun of his wretched country of origin.

  13. Polymath says:

    There are several things you overlook in your reply. First of all, I am talking about consumption = living standard, not how much is being saved or how dangerous the debt load is. Second, people compare out of their own experience. An ancient Roman would not mind your suggestion but someone who had lived better would. In my lifetime consumption has increased widely but this expresses itself as an overall shift in the distribution. Of course it is tough for the median income family to send children to college, but college is one of the few things that is a much worse value now. If you actually look at comparable percentiles in the distribution we are much better off now (though not any happier because of the effect of envy; in fact possibly less happy because of the increasing ability of the mass media to keep us dissatisfied so we will buy more stuff).

    I lived through this. I have seen how cities and suburbs have changed over the last 4 decades. Life isn’t any happier now, and in many social ways it is worse, but purely materialistically we are producing and consuming a lot more. Measuring in dollars will distort things, but living here the difference is obvious.

    Interestingly, for many years it was almost entirely a quantitative rather than a qualitative change — the typical suburban lifestyle was pretty much the same from the 50’s through the mid 90’s, except that everything got bigger and higher quality gradually and more and more people reached that level as a proportion of the population. The first significant qualitative change in the American middle class suburban lifestyle since 1950 occurred with the rise of the internet and widespread computing and cell phones in the 90’s, which was accompanied by more rapid social change for a variety of reasons. (The cities had been changing for a lot longer, since the late 60’s.)

  14. rebelliousvanilla says:

    Polymath, people had the ability to blow their savings in the 1970s too and have a higher standard of living. What people do with their income is relevant – their whole income. Anyway, I don’t really care about the size of government. I’d rather have a government that spends 60% of GDP and be satisfied or have one that spends 10% and be unpleased.

    Oh, and Americans have been consuming gradually worse food throughout this entire process. These comparisons are bogus to begin with and if the book is filled with these, its nonsense. Its the same as the CPI where the government assumes substitution if the price of meat goes up. Sure, I could eat dog food and buy more cell phones, but that’s hardly relevant. Everything of real importance got more expensive in America – housing, healthcare, education. So, I’m 20. Let’s suppose I marry a 25 years old man making the average wage and have two children by the time he is 30. I want health insurance for the whole family, a house and both my children to go to university. Will my family have a higher standard of living or lower than the same family wanting the same things in the 1960s-1970s? Since you grew up in that period, you can tell me.

    Oh, and I don’t want to work. I also want all the things happening then – someone hired to bag my groceries, people putting gas in the tank for me and all those things that were around then, but no longer(since we’re at factoring all kinds of idiotic things in). The truth of the matter is that Americans are far less afluent now than they were then. Affording to raise two children on a single income means affluence. Being wage slaves in order to buy a cell phone isn’t.

    And to sum it up, living standards fell in the last decade in the US. If you look at it, inflation adjusted wise, most people in America are worse off than they were a decade ago. By the way, I read the publisher’s description of the book and it seems to be something different. What’s hilarious though is how the author just repeats the paradigm he absorbed in life about how things should be, when he talks about the evolution of ideas. What I find hilarious is that culture has been becoming trash for more than a century and he sort of sees it as progress(according to the publisher’s note). And I’m not pessimstic about the world overall. I’m pessimistic about the West in its current form. I’d describe the book as the irrational optimist by the publisher’s note actually because he just argues the ‘this time will be different’ case.

  15. Polymath says:

    I agree with you entirely that Americans are worse off than 10 years ago, it just took them a few years to realize they were getting worse off, and now they’re kicking politicians out of office.

    The book itself has relatively little to say about politics — it accepts as a given that politics can screw things up and destroy prosperity, while making the point that innovation and the conditions for material progress are widely dispersed enough that on a global scale they will likely continue despite such setbacks. He doesn’t this is inevitable but he gives reasons for optimism.

    Since the 1970’s there have been big increases in manufacturing and agricultural productivity. You can’t deny this. That many more Americans eat badly is a cultural problem due to bad choices, but what it really comes down to is that, as a fraction of income, the more healthy food we ate in the 70’s is cheaper by, say, 20%, while the crappy food we see everywhere is cheaper by 50% or more. So it is possible to eat healthy AND be better off, but it is more tempting to eat the cheap crappy food and save money while enjoying the indulgence. That’s a character problem, but it does not mean it isn’t progress that the good healthy food is 20% cheaper.

    And it’s traditional 4-year colleges that are much more expensive, but you can get a really good education today by combining cheap community colleges and state schools with internet-based study.

    Health care is crazily expensive here because of the paperwork and the disconnection between service and payment, but the outcomes are still the best, as you have pointed out.My father and my mother-in-law would both have died in around 1990 if medical care had then been at the stage that it was in 1975; they are both in good health now.

    Let’s save the further discussions for a few days, when I finish the book I will be writing more about it.

  16. rebelliousvanilla says:

    Polymath, on a global basis, I agree. The Chinese will be far better off than they ever dreamed 30 years ago. Heck, the whole of Asia will.

    And I don’t see that much of a change of the kind of politician sent to DC. They’re the type of people that will get booted out at the next re-election if people will be pissed off at the incumbents. That’s about it.

    Prices are a relative thing. Soon, if good food is just 20% cheaper than it was, it will be 100% more expensive for Americans to eat that food. Prices are irrelevant. Productive capacity is prosperity, in the end. And the food productive capacity increased at the expense of its quality, more often than not.

    So what, now we exclude prices that we don’t like and rationalize others in? C’mon. You’re defending the undefendable. So, my question is simple. Could I, if I was a 20 years old American woman, have the same expectations that a woman of the same condition had 40 years ago? Marry some middle class average guy and have two children by him without working, while expecting the same things that were found common sensical by Americans then like getting a single family house, having all the people insured and have the children go to college? If not, then living standards are lower. A lot of this is due to the government spending quite a bit out of this guy’s wage compared to the 1970s, but that was where we all started from.

    On a global basis though, sure. But on a global basis, things have always been good due to always having another nation carrying the torch. I hardly give a damn though about how well off the Chinese are though if I’m an American. Well, maybe I would if I’m a treasonous liberal, but that’s about it.

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