What do education and the economy have to do with each other? Is it true that widespread formal education increases wealth and opportunity?
In Antifragile, Taleb argues that our belief that education leads to economic prosperity is false. Instead, he says that wealthy countries invest in education, and we confused this for the cause of the economic wealth.
Keep reading to find out why the relationship between education and the economy are not what you think.
The Fallacy of Education and the Economy
One popular epiphenomenon is that widespread formal education boosts the economy. Strong economies and formal education tend to be seen together, so some people draw the conclusion that education leads to prosperity. However, it’s the other way around: Rich countries tend to institute formal education, not become rich because of formal education.
There are, of course, many good reasons to educate the populace. Education tends to reduce income inequality, to instill good values into people, and to make them more interesting conversation partners. However, to say that these things cause economic growth is a fallacy.
It’s also a fallacy to think that formal education makes people skilled in practice. Author Taleb relates a time when he was fresh out of college and entering the professional world for the first time. He’d studied risk and probability, and he was, at the time, focused on exchange rates between currencies.
Coming from a polished Ivy League environment, Taleb was shocked by the money changers. Far from the refined, educated, politically aware people he expected, they were (to use Taleb’s words), “Street. Very street.” Many of them spoke English with so much slang or such heavy accents that it was barely recognizable as English. A man introduced as one of the biggest traders of Swiss francs in the world didn’t know the first thing about Switzerland.
Taleb recalls feeling his formal education vanishing in front of his eyes—a sign of its fragility. He’d been trained to think that knowledge and education were crucial for success, but these uneducated, barely literate men were handling enormous sums of money with ease.
How Fat Tony Got Fat
He didn’t get rich from any fancy formal education, but from the simple understanding that sooner or later, the economy would take a hit—in other words, by betting on fragility.
Specifically, he made his fortune in 1991, when the U.S. attacked Iraq near the end of the Gulf War. Economists, analysts, and journalists were all predicting that the price of oil would rise if the U.S. went to war. However, Tony bet the other way. He reasoned that, if everyone was predicting that the price of oil would go up, then the market must have already adjusted for that. Therefore, a sudden war would indeed raise the price of oil, but not a planned war.
Tony’s prediction turned out to be right. Rather than skyrocketing, the price of oil dropped by half, and Tony turned a $300,000 investment into $18 million. When asked how he’d known, he simply responded that war and oil were not the same thing. In other words, he avoided the epiphenomenon that war causes oil prices to rise.
So there were two parts to Fat Tony’s good fortune, and neither had anything to do with education or intelligence. First was his innate understanding that people are suckers, and economics are fragile. Second was the rationality to apply that understanding to current events. With everyone hoarding oil, waiting for the expected price boom, they were suckering themselves; there was suddenly much more supply than demand, and the price crashed instead.
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Here's what you'll find in our full Antifragile summary:
- How to be helped by unforeseen events rather than harmed by them
- Why you shouldn't get too comfortable or you'll miss out on the chance to become stronger
- Why you should keep as many options available to you as possible