Nassim Nicholas Taleb is the author of The Black Swan, the bestseller that not only predicted the banking crisis, but also explains why the mainstream economists and financial experts failed to do so.
His ideas revolve around the amply supported observation that conventional economics cannot cope with what Taleb describes as 'black swan' events:
"What is a Black Swan? It is a low-probability, high-impact event that, because of its rarity and the instability of the environment, cannot be scientifically evaluated in terms of risk and return. Although Black Swans are rarely predicted, they are retrospectively seen as having been anticipated, which makes us overestimate our abilities to see them coming. Black Swans can emerge as a result of our intellectual arrogance and our ignorance of our limitations. Some elements of the future are simply beyond our grasp."
In this week's Observer he writes an open letter to David Cameron, which begins with quite an endorsement:
"Dear David (if I may),
"You and your party may be the only hope we have for a resilient society insulated from negative Black Swans and in which everyone has the opportunity to benefit from positive Black Swans."
But then comes a warning:
"For I despair of the Obama administration's ability to fix this financial crisis and prevent future ones. I am appalled by the dangers it has been creating and its takeover by the same economic establishment responsible for this crisis."
Taleb is no kneejerk Obamaphobe, indeed he says that he had "high hopes" for the new President. Among the various policies he urges Cameron to adopt, the need to reduce debt is top of the list:
"We have known since Babylonian times that debt is treacherous and allows no room for mistakes: felix qui nihil debet goes the Roman proverb ("happy is he who owes nothing"). The combination of debt levels swollen from two decades of over-confidence with modern finance's complex derivatives has been disastrous."
There are those who blithely assume that the only alternative to the asset bubble economics of the pre-crunch era are the post-crunch policies of Barack Obama and Gordon Brown. What Taleb shows is that these aren't alternatives at all, but all of a piece. Furthermore, he sets out a genuine alternative which doesn't easily fit in with lazy preconceptions of 'left' and 'right', but which can be recognised as being deeply conservative.
Anyway, read the whole thing.
For further reading, Bryan Appleyard's interview with Nasim Nicholas Taleb is also well worth a look.
