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Nassim Nicholas Taleb, author of "The Black Swan," speaks during the second annual 2010 Buttonwood Gathering sponsored by ...

Beware ‘faux experts’ who don’t pay for their actions, Nassim Taleb says

Editor’s Note: Nassim Nicholas Taleb, the bestselling author of “The Black Swan,” has published a new book about politics and finance titled “Skin in the Game.” PBS NewsHour economics correspondent Paul Solman spoke with Taleb about the book, the 2008 financial crisis, and President Donald Trump. Their conversation is presented here, edited for length and clarity. Watch the full segment on Thursday’s NewsHour program.

PAUL SOLMAN: I first interviewed you in 2006. “Black Swan” hadn’t even come out yet. Then came “Black Swan,” the book. Then came the crash of ’08. You became famous for warning people, having warned people, about extreme events and how cataclysmic they could be, right?

NASSIM NICHOLAS TALEB: The reason people paid attention to my work was because I had skin the game at the time. I was involved. I was taking risks.

PAUL SOLMAN: You were a trader.

NASSIM NICHOLAS TALEB: I was involved. I was eating my risk. Owning my own risk, as I write in the book.

PAUL SOLMAN: Are there black swans on the horizon now? What are you betting on?

NASSIM NICHOLAS TALEB: The point is, the system is fragile because we had a lot of debt. Plus, there are a bunch of things that have been developing that I’m not comfortable with, developing over, say, the least 20 years, but mostly the last 10 years, I’m not comfortable with.

PAUL SOLMAN: They are?

NASSIM NICHOLAS TALEB: It’s that rise of the class, the no-skin-in-the-game class in decision-making.

PAUL SOLMAN: The no-skin-in-the-game class?

NASSIM NICHOLAS TALEB: Exactly. Decision-makers who can drag you into intervention, can drag you into policies that cosmetically feel good, but eventually, somebody pays a price and it’s not them.

There are two levels. The first one, and the most obvious one, is people who intervene in Iraq, thinking, “Hey, we’re going to bring democracy,” or some abstract concept. The thing falls apart, and they walk away from it. They’re not committed with living or owning the toy. They broke it. They don’t own it. Then, the same people make the same mistake with Libya and then now currently with Syria, the warmongers. In the past, historically, warmongers were soldiers. You could not rise in a senate if you didn’t have war experience. [Today if] you have a class of people who inflict risk on others without being affected by the outcome, that class of people is going to disrupt the system, causing some kind of collapse.

PAUL SOLMAN: Do you see some kind of collapse on the horizon?

NASSIM NICHOLAS TALEB: I can see some severe distortions now from that class of people deciding to “fix” things and, effectively, not paying the price.

PAUL SOLMAN: What risk are they posing to us now?

NASSIM NICHOLAS TALEB: Well, the system is loaded with debt that has benefited these bankers. The chairman of a certain bank now is making $23 million a year again in bonuses…. So, people don’t understand that we’re not learning from previous crises to force people to have skin in the game, so they can avoid stashing these risks.

Paul Solman: But if I’m a manager, CEO of a company and I have stock options, then I am punished if the stock goes down.

NASSIM NICHOLAS TALEB: No, not really, because you still have upside, net you have upside.

PAUL SOLMAN: You mean, I’m only going to be compensated, I’m never going to have money taken away from me.

NASSIM NICHOLAS TALEB: Exactly, whereas the taxpayer only has a downside of that trade. The taxpayer will never have the benefit of what’s going on, but we pay the price as taxpayers.

PAUL SOLMAN: Because we’re going to bail them out, you mean?

NASSIM NICHOLAS TALEB: Of course, so we are really the people who are owning the risk.

PAUL SOLMAN: So, what’s the cost?

NASSIM NICHOLAS TALEB: Let me take you back to the “Black Swan” and an idea I continued. In the “Black Swan,” I asked myself, “There are experts who are experts, and experts who aren’t. What marker is there? How would we know? We know very well that a pilot, a plane pilot, is an expert. Why, because there’s skin in the game, there’s some kind of contact with reality. A dentist is an expert. Your tailor is an expert. But you can never tell if an employee of the Federal Reserve Bank of the United States is an expert. As a matter of fact, I’m certain that they’re not experts. Economic forecasters, [but] they are not experts. So, they are what I call the “faux experts.”

We know where they are. It’s very simply someone who makes a decision that doesn’t have visible consequences for the person to be affected. And that’s what I call the no-skin-in-the-game expert.

PAUL SOLMAN: And it’s to the reaction against those experts that you attribute to Brexit and Donald Trump?

NASSIM NICHOLAS TALEB: Yes, of that rise of the class of pseudo experts running our affairs.

PAUL SOLMAN: My initial question was, “What black swans do you see now?” You said, ‘Hey, too many people with not enough skin in the game, is setting us up for…’ What?

NASSIM NICHOLAS TALEB: For a riot, because people understand. They have the Web, they have Twitter, they have access.

PAUL SOLMAN: What are they going to do?

NASSIM NICHOLAS TALEB: They are rioting. They elected Trump, they are electing all these governments… There’s a riot against the class of over-educated, Harvard, Ivy-league, Cambridge, Oxford, Ecole Normale in France, this whole class of people is no longer going to be able to run our affairs… The system laden with debt and with pseudo experts will collapse eventually.

PAUL SOLMAN: So, that’s the black swan, a collapse.

NASSIM NICHOLAS TALEB: A collapse, because we haven’t really remedied what happened in 2008. We haven’t fixed anything from 2008, what caused 2008. There’s still a lot of debt in the system… Now it may be, miraculously, under Trump, we may have a second wind and America may rise again, and pay the debt. Hopefully that would work.

PAUL SOLMAN: You mean huge economic growth?


PAUL SOLMAN: Were you in favor of Donald Trump?

NASSIM NICHOLAS TALEB: I was not against. First of all I gave him higher odds, because of this. I was writing the chapter on the I-Y-I, the Intellectual Yet Idiot, and I was describing the mechanism. And I said people are rioting against that. And I said that anyone who makes more sense to your Chinese grocery store owner, just off the ship, more than to an intellectual, would win. That’s what happened. I gave Trump close to 50 percent chance at a time when it was not possible. Mostly for technical reasons, and also because I believe that you can see that he makes a lot of sense to merchants, to small business owners, but he doesn’t make sense to intellectuals. So, he has to be that person. But anyone would have been elected, had they played that same platform, of coming in and trying to address in simplistic, but very clear, no nonsense terms to the general public.

PAUL SOLMAN: By saying the people who have been running the show have been leading you astray.

NASSIM NICHOLAS TALEB: He got the disease right. Now whether he’s going to fix it, I don’t know.