PBS NEWS HOUR Interview with Nassim Nicholas Taleb, famous economist and author of “The Black Swan” and Dr. Mandelbrot, professor of Mathematics. Both say that the present economy more serious than the Great Depression, and the economy during the American Revolution.

10/21/08:

Category: Bailouts, Derivatives, Economy, Video

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

14 Responses to “The REAL Maverick: Present Economy worse than Depression”

  1. Alessandro Machi says:

    How can we have an economy when the elite have no faith in cash flow, or the flowing of cash, not credit, from the consumer back to the banks. Valuing credit more than cash is the problem.

    If the consumer could pay down their credit card debts interest free, the economy would start to flow again. If future credit-card debt minimum payments were raised by a factor four, people would see the trap of debt much earlier than they did this time around.

    The worlds economy would grow slower, but much much more steadily.

    http://www.Credit-Card-Cap.com
    http://www.DailyPUMA.com

  2. Steve Barry says:

    We are not in a black swan event…we are not in a “perfect storm”…those are the results of probabilities for random events. Eventually, you are going to get a perfect storm, but it’s all the luck of the draw.

    This is the bill coming due for a massive 25 year long drunken binge. It has nothing to do with luck, chaos, or chance. It is a necessary consequence of our choices over the last generation.

  3. Alessandro Machi says:

    How can we have an economy when the elite have no faith in cash flow, or the flowing of cash, not credit, from the consumer back to the banks. Valuing credit more than cash is the problem.

    If the consumer could pay down their credit card debts interest free, the economy would start to flow again. If future credit-card debt minimum payments were raised by a factor of four, people would see the trap of debt much earlier than they did this time around.

    The worlds economy would grow slower, but much much more steadily.

    http://www.Credit-Card-Cap.com
    http://www.DailyPUMA.com

  4. wunsacon says:

    Agree with Steve Barry…

  5. Steve Barry says:

    wunsacon:

    and what more evidence do we need than a WalMart employee getting trampled by crazed shoppers…and as he lay there dying, they kept the store open and people kept on shopping. Where does it end? Maybe a depression will correct some of our priorities.

  6. johnlewismealer says:

    Okay folks, here’s the deal… Quote me on this and you will soon see me all over the place.

    The economy is only as bad as we are lead to believe it is. The same lying media that gave us Obama who just recently told the world that, “the CHANGE is me”…. Nothing new but him. Wow, thanks for voting him in, morons. he’s a kenyan so he will soon be gone and we have giveaway Joe to replace him.
    ANYHOW…

    The economy is only bad for the paper rich who refuse to give up their actual wealth to create new businesses sicne Obama and Biden have planned to tax the hell out of anyone who wants to do any good.

    They may bail out the AFL CIO and UAW (as the Big Three are doing alright and only need to pay off the labor mobsters.)…

    IN WALKS MEALER COMPANIES.

    We… er … I will rally Wallstreet and the masses with the McCain 3R Economic Energy plan and put millions back to work and push tpo create tens of thousands of NEW USA MFG jobs.

    Walmart and Home Depot will no longer be able to force their suppliers to import their crap materials from slave labor China. We don;t need to wear the India slave sweat shop labor clothing… Levis can come home to America.

    This is serious shit folks… say F-Off to the AFL CIO and UAW as they have ruined this nation enough already. When you hear about me.. at least follow my words and listen to what I have to say and then step back and get ready for a wild ride. We are going to take this economy back to the Republic from wence it came.

    The Republic? I can just hear you… “Is this guy friggin nuts?”
    The republic meaning we have the right to begin our own corporations and grow to whatever size the economy will allow.. Not a friggin democracy where the labor unions can rule the way we work and the amount of money we make.

    Stand with me during this WIN-WIN situation or I’ll squash you down with the commie unions.

  7. tjandthebear says:

    I can’t believe this is even a question.

    Every argument I hear comparing the two eras goes something along the lines of “we’re smarter now” or “we’re so much more advanced” technologically or otherwise. The former is laughable; the latter ranges from irrelevant to downright harmful.

    It’s frankly quite amazing to behold the arrogance and denial of the so-called modern man.

  8. VoiceFromTheWilderness says:

    well, I agree with Steve Barry. If you believe that stock market prices are ‘random events’, well, I’ve got a bridge to sell you. But, I would beg to differ with the implicit analysis that what Benoit Mandelbrot is talking about is ‘random-ness’. The point that is being made is that with sufficient non-linearity, arbitrarily small effects can become arbitrarily large. This is not ‘random’, but it looks random — in a restricted sense. It seems we all agree: ‘uh oh’!

  9. Bob_in_MA says:

    I, too, agree with Steve Barry. 9/11 was a black swan event. But I really don’t think anyone looking at this twenty years from now is going to find it surprising that CDOs based on the worse parts of securities backed by subprime mortgage securities backed by loans of $500,000 given to $30,000/year janitors, eventually collapsed.

    Was the market crash in October 1929 a black swan event?

    On the other hand, the present collapse would seem this has led to all sorts of black swan events. For instance, who predicted that the eventual collapse of the housing bubble would lead to a situation where state and local governments have trouble selling bonds?

  10. leftback says:

    @ Steve Barry said: “and what more evidence do we need than a WalMart employee getting trampled by crazed shoppers…and as he lay there dying, they kept the store open and people kept on shopping. Where does it end? Maybe a depression will correct some of our priorities.”

    Steve, I couldn’t have put it better. People in this country have lost touch with reality and many will need to experience hardship in order to be reconnected with that which is real. Until the orgy of consumerism ends, or at least moderates, this society will not have learned anything. This was not a black swan event, it was entirely predictable.

    @ Bob: “the eventual collapse of the housing bubble would lead to a situation where state and local governments have trouble selling bonds?”

    Bob, the housing bubble was a huge revenue producer for local governments at all levels. Why do you think we find real estate scumbags all over our local government in this country? So they can monetize the conversion of agricultural land into McMansions, that’s why.

  11. Mr. L says:

    I think at the end of this, what we can best do to pull out any usefulness is recognize the simultaneous truths of Taleb/Mandlebrot and Steve Barry/historical understanding of finance. The main truths of Taleb/Mandlebrot flow out of the uncertainty of the future, which are compounded by an intense and eclectic philosophical and mathematical reasoning. They recognize the inherent big pictureness of the situation; that despite some people’s recognition of the ‘reality’ or ‘return to fundamentals’ that a dream can be lived for a long time before it pops and the other reality returns again. The recognition of what many perceived of as the inherent problems were an issue for a minority of the business, including many of the most influential power brokers. Most of the financial system went into the credit expansion cycle (knowingly, or unknowingly) and either believed the reality that such an expansion could happen, or propagated its flawed structure knowingly. All of this happened despite some people’s recognition of the inherent issues.

    What Taleb/Mandlebrot would be served by doing is getting off of their mathematical high horse, and start kissing history’s ass for a little while because similar bubbles have provided significant vision for what has happened and what is happening in this crisis. Taleb and Mandlebrot have not fundamentally and completely recreated our ability to see reality, although they have provided a significant new clarity for uncertainty, understood in mathematical form. Taleb and Mandlebrot are both brilliant (particularly Mandlebrot, as he was able to see and conceptualize fractals in mathematical form. Although he was not the first person to perceive of fractals, he was the first to be able to do so from a Western/Modern/Mathematical perspective. Check out the work on African fractals to see another understanding of where it was understood among people). However, both are so into themselves and their intellectual abilities it is sickening. They can recognize the importance of the intertwined nature of people in a perceived reality, and in a more complex mathematical form than most of us will ever comprehend. However, they do not heed the great lessons of our ancestors, who recognized many of these truths before getting to such a mathematical realization. Humility is certainly lost on them.

  12. kat says:

    These are not “black swan” events. These are unintended consequences of a great pooling of short term thinkers, planners, and CEO’s, investors and governments. Had we had a pool of long term planners, thinkers etc., this would all have been thought out to the ending result. I do not feel that a great mathematical formula was needed to figure this out. As a parent, I was asked by my four year old many years ago, “What eats what Momma?” and I think we can all think this through…

    The consumer is bankrupt, the banks are bankrupt, the American auto industry is bankrupt, local and state governments are bankrupt, and I think we can expect the expected with the US governments becoming bankrupt….and so on and so forth.

    Everything is cyclical and we’ll roll until the next cycle. It’s a really big deal, but certainly not an anomaly or “black swan”.

  13. Mr. L says:

    Well, I just finished reading Taleb’s Black Swan. I’ll update my comments. First, as to Taleb and his ‘high horse,’ I find his approach acceptable, knowing better what he is fighting. It takes a true intellectual to realize how to be effective, not just correct. I admire his strength of opinion and clarity. If I were to choose a similar path, he would be a phenomenal model.

    Second, I would propose that Black Swan’s (as Taleb approaches them although I haven’t read his new book) seem to fall into a social context. He addresses that as recognition of the potential for a certain Black Swan can make it to a certain degree a Gray Swan. Perhaps the concept of the Black Swans needs to incorporate a sense of ‘social relativity’ which recognizes the circuitousness of thought (everyone believes something, so it is). I think the combination of the Black Swan with a theory of social relativity would come closer to explaining the current crisis. In this sense, those who recognized the inherent fallacy of the current economic crisis were a minority in terms of economic, social, and political power, but were attempting to make the black swan into a gray one. Often, the relative point is based on context, and power. Just as the sun exerts more gravitational force than the earth, so do the banks exert more of a force on current economic reality than a good thinker, or blogger. However, monumental shifts can occur unexpectedly. This reality is never a certainty.

    Nicholas, if this gets back to you (somehow), I thoroughly appreciated your book.

  14. jucojames says:

    I think some of the people leaving comments are misunderstanding the analytical backdrop from which people like Taleb and Mandlebrot are coming from. I prefer to use natural world metaphors for what they describe, as I believe it is the best way to explain. Complex systems throughout nature become most vulnerable when they reach the status of being in a critical state. It is the existence of a critical state that allows for a “Black Swan” or “Butterfly Effect”. The way I describe this to my clients is using the example of a mountain with snow building up to the point where a critical state is reached and a deer fart can create a catastrophic avalanche.

    In negotiated financial markets and the economy (just two more examples of complex systems IMO), a critical state is typically reached via excess leverage. Focusing on the Black Swan event misses the larger point, IMO. One could argue that the subprime collapse was the “deer fart” of the recent avalanche – or like the assassination of Arch Duke Ferdinand was for WWI. The larger issue is the appreciation and respect for what a critical state means and the randomness, fractal and potentially chaotic nature in which the critical state releases pressure. Give the fact that the world is coming off of the largest credit bubble in the history of human civilization, it is reasonable to be worried about the avalanche being of unprecedented size. However, any self respecting practitioner of analyzing complex systems should be humble enough to recognize that anything can happen. I think Mandlebrot and Taleb’s dooms day opinions is due to the grandiose size of the critical state the global economic and financial system reached and the enormous size and swiftness of the avalanche to date certainly “fits” with this view. The question now is whether the massive amounts of government interventions into the economy and markets around the world can be a wall strong enough to end the avalanche or whether the moves are simply enough to stop the avalanche for a time and cause it to reconfigure into a different version (i.e. global hyperinflation driven by broad currency devaluations versus hard assets versus the recent deflationary credit/asset collapse).