Mobs, Messiahs, and Markets

I recently finished Mobs, Messiahs, and Markets: Surviving the Public Spectacle in Finance and Politics. Where do I begin with a book that takes a shot at pretty much anybody and everybody, including the authors themselves? To say that this book is skeptical or contrarian is like saying Warren Buffett has money. This book could set the standard for skeptical writing. That said, it’s part of the reason I enjoyed the book so much.

The general premise is this: we don’t realize how difficult and complex some things are, but we undertake speculative endeavors in an attempt to get ahead because we want to impress the opposite sex (it’s in our genes), and when you add all that together for the masses, you get really stupid behavior.

In an attempt to make sure everybody is equally offended, the authors first poke fun at liberals by claiming that their policies aren’t really designed to make things better, but instead are designed to “discomfort those who don’t agree… it is merely another way of bossing other people around, under the cover of a ‘good purpose.'” Next they lash out at conservatives (or, at least, the current administration) by saying that “success has transformed a modest people whose greatest virtue was once minding their own business into a vainglorious race, who mind everyone’s business but their own” and quoting Issac Asimov that “violence is the last refuge of the incompetent.”

This book creates cognitive dissonance that slaps you in the face very couple of pages. The authors seem to enjoy setting up critiques of the left or right, then flipping sides and using the same arguments on the other side. You nod in agreement as the authors tear down the people you don’t like, then feel guilty when they turn their firepower on your ideas too. It exposes the subtle complexity that is important in so many situations, but that we often ignore so that we can feed our desire for simplistic absolutist views.

Here are some of the more interesting quotes from the book.

Ignorance increases by the square of the distance from a given event.

The truth is – popular politics and bubbles are almost always frauds that flatter our sense of vanity.

Why is there a $700 billion trade deficit? Because Americans want to buy things they can’t afford. Why do they want to buy things they can’t afford? To pretend to be richer than they are. Why do they want to appear richer than they are? Because it gives them higher social status. Why do they want higher social status? So they will have better access to the opposite sex.

Studies show that people are more likely to accept the opinion of a confident con man than the cautious view of someone who actually knows what he is talking about.

The professionals may explain that derivatives help globalized information-drenched markets disperse risk, but this is wishful thinking. They don’t really disperse risk at all; they aggregate it. Fund managers all learn the same theories. They all read the same papers and attend the same conferences. And now they all trade the same things, using more or less the same strategies and formulas.

After 300 pages of entertaining criticism of anything and everything, the authors finally tell you how to get rich. Mostly, it doesn’t involve what you do, but rather, what you avoid. It’s the stuff you have probably heard before: buy and hold, minimize taxes and transaction costs, stick to what you know, analyze the risk that you don’t know you don’t know, and of course try hard to think for yourself and not pay much attention to other people.

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I loved this book and I read the full 400 pages in just a few days. But I won’t recommend it to everyone. Francis Scott wrote that “The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.” I do not think most people have this capacity, but if you do, I highly recommend this book. For everyone else, it will just be offensive.