Taleb Vs. Taleb: A Question Of Time, Lindy And Portfolios
I joined Nassim Nicholas Taleb’s very extensive block list about two years ago. It’s not a very exclusive crowd and many more erudite people than me have received the patented “Imbecile” tweet that signals an imminent Taleb block. My crime? I had quoted “Antifragile” back at him in an argument over something I can no longer remember. (I proudly cherish the screenshot of the last tweet I ever saw of his).
For his Bitcoin nonsense released in June 2021 — the paper ‘Bitcoin, Currencies, and Fragility’ (an earlier version used “Bubbles” in the title instead of “Fragility”) — we might repeat the exercise of quoting his own words back at him.
Mr. Taleb, prone to making extravagant claims and denouncing everyone from journalists and politicians to economists and foreign policy experts, now seems to have joined the ranks of other well-known Bitcoin skeptics: Robert Shiller, Paul Krugman, Nouriel Roubini, and — somewhat puzzlingly — the world’s foremost expert on hyperinflations, Steve Hanke. Worse is that Taleb might be one of the first vocal supporters to unlearn what he once knew, or perhaps pretended to know; in 2018 Taleb wrote the preface to Saifedean Ammous’ “The Bitcoin Standard”.
Many people further down the rabbit hole than Taleb took apart his impressive-sounding but surprisingly fragile paper (I can highly recommend Louis Rossouw’s take or Sevexity’s piece). A brief summary of the paper’s argument is:
- Bitcoin failed to be a currency because currencies need stable prices and price fixing.
- It’s a lousy store of value.
- It lacks the properties of an inflation hedge.
- And because of a non-zero probability of hitting the absorbing barrier of worthlessness, its present value is therefore zero.
These are, as Robert Solow once said in an Ely Lecture fifty years ago: “words, all words.”
Which, by Taleb’s own admissions, do not matter. All that matters is what’s in somebody’s portfolio, per his own rule in his book, “Skin in the Game”: “Don’t tell me what you ‘think,’ just tell me what’s in your portfolio” (p. 4). Or, “Those who talk should do and only those who do should talk.” (p. 28).
One of several areas where I think Taleb’s ideas approach Austrian economics is the “Action Axiom” – that actions speak louder than words; that talk is cheap and therefore unreliable; and that valuation comes from doing, not saying. When was the last time Taleb transacted using bitcoin, I wonder? Has he ever tried buying his macchiato using the Lightning Network? Did he ever write code or build something that uses Bitcoin?
A few chapters into this otherwise great book (published around the same time as his infamous preface to “The Bitcoin Standard”) we get a personal anecdote. Taleb tells of once having to comment on stocks in a TV roundtable discussion:
“The topic of the day was Microsoft, a company that was in existence at the time. Everyone, including the anchor, chipped in. My turn came: ‘I own no Microsoft stock, I am short on Microsoft stock, hence I can’t talk about it.’ I repeated my dictum of Prologue 1: ’Don’t tell me what you think, tell me what you have in your portfolio.’” (p. 63)
So, do we trust the man’s twenty-odd years of writing and living according to the ethics and arguments explored in his books, “Fooled by Randomness,” “Antifragile,” or Skin in the Game”? Or do we throw that seriously-contemplated and well-argued body of work overboard in favor of some brief Twitter anger and the intellectual acceptance of his fellow Bitcoin critics? Though perhaps he is staying true to his skin-in-the-game argument and is actually short a lot of BTC. But then, per his own rules, he would have to say so publicly.
In the preface to Saifedean’s book, Taleb wrote:
“Bitcoin will go through hick-ups. It may fail; but then it will be easily reinvented as we now know how it works. In its present state, it may not be convenient for transactions, not good enough to buy your decaffeinated espresso macchiato at your local virtue-signaling coffee chain. It may be too volatile to be a currency, for now. But it is the first organic currency.”
He saw then the very same problems that he now echoes in his new paper to establish bitcoin’s long-term value at zero. But in 2018 he didn’t think those same problems were problems. He didn’t see them as insurmountable challenges, but rather technical issues that could and would be overcome. Cue growing widespread adoption since then, 400% price increase, a functional Lightning Network and a multisig revolution in the makings. But Taleb, the king of contrarians, does a one-eighty just when the rest of the world is catching on.
An Expert Called Lindy
Another argument that pervades Taleb’s writing is that time is the ultimate test of everything. Short term, you can fool your accountant or your regulators. For a surprisingly long time you can even fool large political audiences. But you cannot fool reality. If you plant fragilities, given enough time, they blow up. Reality is the ultimate arbiter.
The only thing that matters, Taleb repeatedly taught me, is time. So far, Bitcoin has survived everything thrown at it and the industry surrounding it is thriving.
Twelve years from inception to a $1 trillion market cap is ludicrously fast. We’ve used money on and off for about 5,000 years, commodity money with a layer-2 banking system for some 500, and floating fiat currencies run by megalomaniac central bankers for about 50. Taleb is at his most persuasive when he chants the Lindy effect – the tendency of things that have already endured the test of time to last even longer. Again from “Skin in the Game,” an awfully convenient Taleb-busting book, we get “time is the expert” (p. 140) and “the only effective judge of things is time” (p. 142).
It seems odd, then, to denounce Bitcoin as untested and insufficiently proven in 2021, when in 2018 the very same Lindy-wielding probability theorist wrote:
“Which is why Bitcoin is an excellent idea. It fulfills the needs of the complex system, not because it is a cryptocurrency, but precisely because it has no owner, no authority that can decide on its fate. It is owned by the crowd, its users. And it has now a track record of several years, enough for it to be an animal in its own right.”
You publicly denounced Bitcoin, Nassim, as is your prerogative. But it’s all okay. Your contributions are your great books, not your poorly argued paper or the occasional pompous TV appearance. “Impeccable work,” writes Scott Raines, “does not imply personal infallibility.”
For those achievements — and despite your human flaws — we, the Bitcoin community, thank you.
This is a guest post by Joakim Book. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.