Polymath Taleb Cautions Against Playing God

 
'Big economies will always fail'

Author and finance scholar Nassim Taleb argues that we don't fully understand how financial markets work, making economics based on risk a recipe for disaster

Your new Black Swan chapter looks back on the financial crash, but it begins by thinking about what we might have learned from studying the human body…
The notion of fragility and robustness that I am bringing is applicable across domains. The human body has built-in redundancies: two eyes, two kidneys, two lungs. It is good to incorporate that model into everything we create. In financial entities it creates less growth but more robustness. Also, wherever you have a lot of interactions, it is important to have nothing too large. Why has evolution made an elephant the largest thing on land, and in the ocean a whale? You have to have a dogma that mother nature knows best.
Would you describe the black swan idea as a philosophy of humility – that is, we never know as much as we think we do?
I would say it is more making a map of what you don't know and confining it. The human body – we don't know large parts of it. The economy, likewise. We shouldn't treat it all the same. We must acknowledge where a lack of knowledge can harm us. Our lack of knowledge is everywhere, but in some domains, as we have seen, it can have monumental consequences.
Did you have an "I told you so" feeling about the economic meltdown?
No, there was no schadenfreude, just anger: Why didn't they listen? My book was selling a lot more before the crisis than during or after. Then, people didn't want to hear…
You have been invited to many forums looking at how we can learn from what happened. Have any been useful?
I always had the feeling that these people had just crashed the plane and they had no idea why the plane had crashed. It was as if they all thought it was because the pilot was wearing a red shirt or something like that.
Has no one grasped the message?
The only politician who seemed to understand The Black Swan is David Cameron. He was convinced that there is great hidden risk in the economy in a world that has become much more complex in the past 25 years. He understood that government deficit makes you more reliant on forecasting, at the same time that our reliance on forecasting has proved disastrous.
How much has your own biography taught you about uncertainty?
Not my recent biography, but my heritage. My family worshipped books, and we have done for six generations. Around 1800 my ancestor was a silk trader, who wanted all his progeny to be scholars. Even though my father was a doctor, we were taught to respect the lessons of history not science.
What does the past teach us about the current crisis?
The Romans, the Arabs, the Jews all had an edict against debt. If we had religion with a tacit prohibition of debt, we would probably not have had this problem. But science, or scientism, thinks it knows better.
Is there something in that silk trading heritage that you recognise in yourself?
Commerce in the Mediterranean has always been on a human scale. It is only when you move from an artisan‑style economy to a corporate-style economy that you develop fragilities. Corporations take the humanity out of trade – they take the happiness out and replace it with something that is ugly.
Should anything be too big to fail?
I just wrote a paper explaining why size necessarily brings fragility. You have family-owned businesses that have been around for 500 years. You cannot name a corporation that survives intact for even a few decades. We should not be concerned about wealth; we are rich enough, but we should be very concerned about robustness.
Can technology help this process?
The internet allows the small guy a global marketplace. But technology is harmful in the sense that we get too much information from it. Because of the web we get 10 times the amount of noise we ever got, which makes harmful fallacies far more likely. I can't imagine situations in which social networks could be useful except to arrange to have dinner with someone, and they clearly can be very destructive.
The appetite to restore the economic models to what they were must drive you crazy?
Yes, but I also have an exit strategy that others don't: I make bets against US Treasury bonds. People lecture Greece about debt, but the Greeks are not in debt in comparison with America; in America debt is uncontrollable.

  Why is your opinion of economists so low? Being an economist is the least ethical profession, closer to charlatanism than any science.
 Why did economists get the crisis so wrong? That's like asking why fortune-tellers don't get things right. Their tools don't work, but they continue to use them. And the Nobel committee gives prizes to people who aren't scientists.  
What's your view of the "new atheists", people such as Richard Dawkins or Sam Harris? They're charlatans. But see the contradiction: people are sceptical about God, yet gullible when it comes to the stock market.  
You say in your book that four former Lehman employees sent you death threats. I'm a threat to people on Wall Street. Typically, I'm better off than my detractors in finance, and higher-ranking than the economists, and I have more readers than the journalists.  
What would you like to forget? My detractors look for incoherence in what I've written. They haven't found it, but if they do . . .  
Is there a plan? To make society more robust, or stop it from getting more fragile. I wish I didn't have to, so I could do something more pleasant for myself.