“It’s a bullshit science”

14 03 2009

Nassim Nicholas Taleb, once again, summing up the field of economics perfectly.

Some highlights:

-Years ago, I noticed one thing about economics, and that is that economists didn’t get anything right. I wanted to find out the reason. They would say their models are not perfect. But data show that you do much worse using their models than you would without them. It’s a bull [expletive] science.

-Yes, Roubini got it right. But Roubini wasn’t right because he’s an academic economist. He was right because he is a very insightful fellow. He is so good he managed to surmount his education in economics.

-I know who should not be on his (Obama’s) team — anyone who did not understand that the world financial system included more risks than it showed. This leaves plenty of individuals outside the administration and outside the economics profession who warned about it. Aside from Roubini, the closest thing in the economics profession would be Ken Rogoff. I would also require that the person be a business person — someone who did not make a career writing papers to impress fellow economists.

-Look at [former Treasury secretary Robert] Rubin at Citigroup. He made and kept a $115 million bonus while the taxpayer has to bail them out. We should not be paying the Bob Rubins anymore. We have to have clawback provisions to make sure that we punish people for their bad bets.  I am in favor of partially nationalizing the banks for this reason and banning complex derivatives. Nobody understands them. I would also start indicting the vendors of these financial risk management systems that everyone relied upon to tell them everything was okay when it wasn’t.

-Complex systems do not like debt. So it will proceed to destroy tens of trillions in debt until society rebuilds itself in an ultraconservative manner. We are in for a worse ride than people think.  People have the problem of denial. This is one of the things I learned in Lebanon. Everybody who left Beirut when the war started, including my parents, said, ‘Oh, its temporary.’ It lasted 17 years! People tend to underestimate the gravity of these situations. That’s how they work.

-My rosy scenario is that a better economic environment will develop, a low-debt, robust growth world, in which whatever is fragile will be allowed to break early and not late.  My nightmare scenario is that the government saves Citibank once again, as well as the other banks, and business resumes as usual. Then, the next time the system breaks, it breaks much, much bigger.

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