While rapid advancement of technology has been decentralizing or democratizing data and information flows, central planners dream of the opposite: centralizing these in an attempt to control the markets.
A recently enacted financial overhaul law, Dodd Frank has an offspring called the Office of Financial Research.
According to the Wall Street Journal Blog, (bold emphasis mine)
Dodd-Frank created the new semi-autonomous office to support a new council of regulators – the Financial Stability Oversight Council, or FSOC – that is charged with spotting and tamping down emerging risks to financial stability. The OFR has two key components – a data-collection arm that has broad power to request any kind of information from financial firms it deems necessary, and a research and analysis arm that to be focused on monitoring the financial system for risk and producing research to improve regulation.
Celebrity author and Black Swan expositor Nassim Taleb critiqued the framework of this new office. In a prepared testimony Mr. Taleb says that this represents
an attempt to create “an omniscient Soviet-style central risk manager.”
That’s because Mr. Taleb points out that quant models can’t capture real events
According to the same article, (bold emphasis mine)
In his testimony, Mr. Taleb said that “[f]inancial risks, particularly those known as Black Swan events cannot be measured in any possible quantitative and predictive manner; they can only be dealt with [in] nonpredictive ways.” He argued that trying to do what the OFR is designed to do could actually increase risks, in part by increasing “overconfidence” in the information’s ability to predict the next crisis.
Like all quant-econometric based models, they suffer from what the great F. A. Hayek calls as the knowledge problem as embodied by the quote below:
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
Most people hardly ever learn
