Flight of the Black Swan

By Fraser, Nelson | The Spectator, February 11, 2012 | Go to article overview

Flight of the Black Swan


Fraser, Nelson, The Spectator


The political philosopher Nassim Taleb has some words of warning for the Prime Minister

Nassim Taleb is banging a glass against a table to demonstrate his notion of 'anti-fragility'. 'This glass is fragile, ' he says. 'Vulnerable to nasty surprises.' The glass survives his test. 'Now, what's the opposite of fragile? Not "robust", because robust things don't respond to any surprise, nasty or pleasant. To survive shocks and be adaptable means being "anti-fragile".' He believes that David Cameron should remake the British economy with this idea in mind. Economists come up with such theories and sound bites all the time, but with Taleb there is a crucial difference. When he speaks, the Prime Minister listens.

Since Taleb published his bestselling Black Swan five years ago, Cameron has been fascinated. A former derivatives trader turned New York University professor, Taleb emphasises the dangers of certainty - how economists, with all their computer models, get it so wrong. No matter how clever the plan, something unexpected - what Taleb calls a 'black swan' - can fly on to the scene and upset everything. The higher their debt, he says, the more companies are vulnerable to shocks. Taleb's admirers saw the crash of 2008 as a staggering validation of his theory.

When Taleb held a public discussion with Cameron about debt two years ago, the admiration was mutual. Taleb described the then opposition leader as 'the best thing we have left on this planet'. Even now he stands by that assessment. 'I saw in him, then, someone who wants to rebuild society along the right model. Cameron was the first leader to grasp that deficits are dangerous.' But this was two years ago. Our conversation moves on to what has happened since.

British economic output is forecast to grow by £100 billion over the next four years, I put it to him, but with a corresponding increase in the national debt of £360 billion.

The analogy Taleb reaches for is not flattering. 'In any Ponzi scheme, there is great growth initially, ' he says. 'Then you have to pay it back.'

But he's quick to add that Cameron had limited choices. 'Debt may be necessary for a while, you don't want to create great social disruption.' He can talk about the economic danger of high debt, but recognises there is also political danger in austerity. 'I try to stay outside immediate debates. I talk about structure that we should arrive at, not what should be done tomorrow morning.'

This is just as well, because Cameron's government appears to be following his recipe for ruin. For example, George Osborne recently published spending plans until April 2017 - using the promise of austerity later to justify higher debt now. What should we make, in general, of such longterm budget plans? 'Bullshit, ' he says, with a smile. 'Look at past five-year plans, how many have worked? It's like someone getting married eight times, each time thinking "This time it's for love."' So how long should governments draw their budgets? 'One year at a time, ' he says. 'The error margin for five years is monstrous.'

Taleb is famous for blunt talking. He spent long enough in Wall Street to be appalled by its hubris, especially the way the banks convinced themselves and their investors that computer programmers had found a way to eliminate risk. He loathes what he calls 'big data', companies that purport to let firms hedge against every conceivable risk and make banks indestructible. …

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