“I started putting an error rate on the Gaussian (by having my true distribution draw from two or more Gaussians, each with different parameters) leading to nested distributions almost invariably producing some class of Extremistan. So, to me, the variance of the distribution is , epistemologically, a measure of  lack of knowledge about the lack of knowledge of the mean- and the variance of variance is analog to the fourth moment of the distribution, and its kurtosis, which makes such uncertainty easy to express mathematically.  This shows that : fat tails= lack of knowledge about the lack of knowledge.”

from The Black Swan by Nassim Taleb

Now that ought to clear up a few things.  It basically says we don’t know shit. At least we do not know what we think we know.

“The capacity to grasp and manipulate complex ideas is enough to define intellect but not enough to encompass intelligence, which involves combining with judgment and care in selecting relevant explanatory factors and in establishing empirical tests of any theory that emerges. Intelligence minus judgment equals intellect.  Wisdom is the rarest quality of all- the ability to combine intellect, knowledge, experience, and judgment in a way to produce a coherent understanding. Wisdom is the fulfillment of the ancient admonition, “With all of your getting, get understanding.” Wisdom requires self-discipline and an understanding of the realities of the world, including the limitations of one’s own experience and of reason itself. The opposite of intellect is dullness or slowness, but the opposite of wisdom is foolishness, which is far more dangerous.”

“George Orwell said that some ideas are so foolish that only an intellectual could believe them, for no ordinary man could be such a fool.”

From Intellectuals and Society by Thomas Sowell

There are those who see our financial problem as a moral failure. In one sense it is, but not in the sense those who wish to frame it in moral tones believe.

To blame greed for the meltdown is simplistic and irrelevant. Greed has been with us forever. Why would it appear in its ugliness now?

I would say that our economic collapse was the fault of a moral supremacy that ignored sound economic principles and common sense.  In an effort to encourage home ownership for the poor, the government demanded that prudent lending standards be forced out of the system. To assure a market the government through Fannie Mae guaranteed mortgages and ridiculous financial instruments to feed the market.

When alarms were being sounded the regulators and legislators were being hounded with political pressure from lobbyists for the very firms they were regulating. Chris Dodd, Hillary Clinton and Barak Obama were among the largest recipients of campaign funds from Fannie Mae.  Barney Frank and many others loudly protested those who warned of a problem, insisting that these programs providing housing for the lower income were somewhat sacrosanct.

It was the unwillingness to understand the limits of government to fulfill our moral wishes that fed this mania.  It was our pursuit of moral justice through government force that led taxpayer funded ACORN to pressure banks to make high risk loans to those who otherwise would not have qualified.

It was not greed or the absence of morality that caused this disaster; it was the ignorance of basic economic principles and the belief that the government can create wealth by making promises it can’t fulfill and that it can erase risk by ignoring it.  In its malfeasance it made the poor worse off and destroyed equity value for millions of the middle class.

If there is a moral failure it is that the government refused to accept its limitations, and that the voters wanted a government that will promise them everything.

The greed of those who wanted a modest house they could not afford caused us more damage than the titans on Wall Street who found a way to get rich delivering the voters their delusion.

From Randall Hoven at American Thinker

Graph of the Day December 24,2009

Julia Baird writes an interesting piece in Newsweek “Positively Downbeat- Sometimes Happiness isn’t everything.”

She argues that our focus on positive thinking has made us gloomy; to overlook problems, unfairness, incompetence and stupidity.

And stupidity is certainly not limited to the uneducated.  A lack of depth has encouraged more certainty that is merited in an uncertain world. The arrogance that comes from combining the morally weak with a lot of education often in subjects that have little semblance to reality have caused much of the distress in our lives.

Mathematical models that seek to emulate human response are doomed to fail.  Their excrement has made Wall Street a financial toilet.  Business leaders should have degrees in philosophy and history rather than management and math.  Some welding and shop classes would also be worthwhile.

Books such as “In Search of Excellence”, “Built to Last” and “Good to Great” have all sought to meticulously study successful companies to provide a blueprint for the rest of us morons to follow. But in all three books most of the companies they followed UNDERPERFORMED the market in the years after the books were published.  Success, like most human endeavors and characteristics, is more difficult to reduce to a formula than we thought.

Just as a bad economy makes business more efficient by clarifying the essentials, so our tragedies and setbacks help us clarify what is important in our personal lives. Blind optimism does not build sound character.  Those who are ready to encounter the uncertain, the unexpected and the unwanted are the survivors.  As Julia quoted Eleanor Roosevlet “happiness is not a goal, it is a byproduct.”