Nassim Taleb Answers Viewer Questions

BY busadmin  June 29, 2010 at 4:35 PM EDT

Editor’s Note: Last week, we aired an interview with economists Nassim Taleb and Nouriel Roubini. Afterward, the two agreed to answer some viewer questions on this site. Unfortunately, due to an unexpected scheduling conflict, Nouriel Roubini was unable to participate in the forum. Nassim Taleb’s answers are posted below — he answered in what he called his “aphoristic and laconic style.”


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Stephan A. Sahl: Is there any realistic chance that this country and the rest of the world will be able to avoid another catastrophic crisis in the next few years, based on sovereign and other forms of debt?

Nassim Taleb: There is little chance we can avoid ruin unless we start lowering debt immediately and get into discipline.

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Ted Olsen: Given America’s present trajectory, what does one do individually to secure a better individual economic future? A decade out, what does our nation’s economy rely on?

Nassim Taleb: Americans are too interested in growth and wealth, and very little with risk reduction. Eventually risk will take everything.

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Anonymous At the end of your 6/15/10 piece regarding the previous economics predictions of Messrs. Roubini and Taleb, they asserted that the federal government must now undertake austerity measures to reduce the national debt, rather than maintaining or even increasing federal stimulus measures. I would like them to respond to Paul Krugman’s characterization of arguments in favor of austerity as being unsupported by any economic model and, in fact, quite dangerous to what little economic recovery we’ve seen at this point. As a reference, I would point them, and the Newshour, to Dr. Krugman’s recent NYT Magazine article entitled “The Pain Caucus.”

Among his primary points are that, with interest rates at the zero bound and no signs of significant economic activity in any sector, only the federal government is in a position to introduce sufficient additional demand into the economy, and only through spending supported by borrowing. He points out, however, that with interest rates so low, it is actually quite favorable to the federal government to borrow. Finally, he explains that the best way to repay existing and newly incurred debt is through a growing economy, which at this point can only be generated through additional federal stimulus.

I would very much like to hear the gentlemen’s responses, including just what model and research it is that they’re using as the basis for the arguments in favor of the pain caucus.

Nassim Taleb: Again, this is too much of the wrong narrative. Forget growth, worry about stability.

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Hugos: What (else) needs to happen so that China and Japan start refusing to finance the U.S. government deficit? Greece is only a small part of Europe, but California is big part of the USA — how is California’s deficit going to end?

Nassim Taleb: Deficits always end in one way.