Skousen Investor CAFE: Failure Is Essential to Success
“Risk taking is necessary for large success — but it is also necessary for failure.” — Nassim Taleb
“Success can only be achieved through repeated failure.” — Soichiro Honda
Nassim Taleb, philosopher extraordinaire of probability theory and author of “The Black Swan,” has finally come out with another book, “Antifragile: Things that Gain from Disorder.” Like his other books, this one is dense, but more entertaining. He takes pot shots at Nobel Prize economists Paul Krugman and Joseph Stiglitz, as well as other prominent establishment figures.
Taleb is opposed to bailing out banks that are viewed by others as too big to fail, because it makes the economy and the banking system more “fragile.” Failure is essential to surviving and prospering. “Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk and uncertainty.” Thus, Taleb’s heroes are risk-taking entrepreneurs who both succeed and fail.
He’s no fan of the Federal Reserve, whose officials are constantly postponing the inevitable collapse of an unstable banking system, creating more and more debt and making the economy and monetary system more fragile.
I suspect Taleb wouldn’t like the “cradle to grave” welfare system that denies risk and opportunity to the poor.
He’s a general critic of the economics profession, but seems to say good things about Joseph Schumpeter (“creative destruction”) and Friedrich Hayek (“discovery process”). Like Ludwig von Mises, Taleb is suspicious of predictions; there are lots of unpredictable “black swan” events out there, and you must be prepared when they happen unexpectedly. The Austrian theory of the business cycle is high on qualitative analysis, but low on quantitative predictions (when a crash might occur). I would think Taleb would like the Austrian school of risk, uncertainty and disorder. He does list Peter Boettke, an Austrian economist at George Mason University, in his acknowledgements.
I suggest that you get a copy of Nassim Taleb’s latest intellectual feast: http://www.amazon.com/Antifragile-Things-That-Gain-Disorder/dp/1400067820.
I quote him three times in my new 2nd ed. of “The Maxims of Wall Street.” My “Maxims” book normally sells for $24.95, but I’ll offer to sell copies to you, my subscribers, for $20 for the first copy, and $10 for each additional copy — and I pay the postage. If you order a box of 32 books, you pay only $300 postpaid. (For orders sent outside of the United States, add $5 per book for shipping and handling.)
To order, call Eagle Publishing at 1-800/211-7661. If you want to order individual books, mention priority code MAXIMS. If you want to buy a box of books, mention priority code MARKB.
To read my e-letter from last week, please click here.
You Blew It!: Raise Taxes on the Rich?
“The wealthy should pay more to reduce the deficit.” — Warren Buffett
Warren Buffett is a friend who has endorsed my book, “The Maxims of Wall Street” (see http://www.mskousen.com/2011/11/a-letter-from-warren-buffett-on-11-11-11/).
But I have to disagree with him on his call for a minimum tax of 30-35% on millionaires.
Buffett said Congress should enact a minimum tax on high incomes — 30% for taxable income from $1 million to $10 million and 35% for anything above that level.
Why is Buffett wrong?
First of all, the wealthy do not get special income tax breaks above the average taxpayer. Most working poor pay no income taxes at all. Middle class people may pay up to 30% of their income in federal taxes. And wealthy taxpayers like me pay up to 36% in federal taxes on their income (and pay the vast majority of income taxes). Now it’s true that Buffett paid only around 15-17% of his yearly income in federal taxes, but that’s because most of his income is in the form of capital gains. The reason capital gains are taxed at lower rates (15% if held for more than a year) is because it’s a form of double taxation… or even triple taxation. Buffett first paid taxes on the income he earned; then he paid taxes indirectly on the savings that he invested in stocks (via the corporate income tax); and finally he paid a capital gains tax on any stock he sold during the year. So, if you add it all up, he paid more than 30% of his earnings in federal taxes, a lot more.
Second, raising taxes on the wealthy transfers funds from the private sector to the public sector. In general, who uses money most productively? Is it private entrepreneurs and investors or government bureaucrats? I dare say Warren Buffett would make better use of these funds in Berkshire Hathaway (which are invested in good growth companies that are creating jobs) than the federal bureaucrats in the Departments of Defense, Education, Commerce, or any of the ABC agencies.
Third, there is no guarantee that an increase in taxes will seriously address the deficit. Buffett and the deficit hawks just assume that the increased revenue will reduce the deficit, but that’s not necessarily the case. If the IRS takes in more revenue, does this mean that Congress will spend less? Obama and Congress “say” they will cut spending 10 times more than they raise taxes, but will that actually happen? I have my doubts. Historically, increased revenues actually have done just the opposite — it has encouraged a spendthrift Congress to spend more. There is only one sure way to stop Congress from running deficits, and get back to a balanced budget. I recommend tax cuts, real tax cuts. As Milton Friedman once said, “If a tax cut increases government revenues, you haven’t cut taxes enough.” Better yet, Congress should simply refuse to raise the debt ceiling. That would balance the budget immediately, not ten years from now.
Yours for peace, prosperity and liberty, AEIOU,
Mark Skousen
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