Can temporary total nationalization avoid the doomsday scenario?


Question/Comment: Paul, I benefit from your explanations of complicated ideas, especially, the financial woes we’re now encountering. I wonder, however, why the doomsday scenario posed by the author of The Black Swan cannot be avoided by the government nationalizing the banks entirely and lending the money directly to keep the economy going? The government is already deeply involved and to avoid another great depression I think temporary total nationalization would be politically acceptable.

Paul Solman: You may well be right, Madeline. I wasn’t endorsing Taleb’s doomsday scenario, just giving it an airing.

But a note of caution: even if the government were to nationalize and be prepared to lend, might not consumers so retrench that businesses would be afraid to borrow? The great fear is “deleveraging” – the retrenchment by us all as we pay off our debts, borrow less, and contribute thereby to a downward spiral of “negative growth.”