Taleb: We Aren’t Heading In The Right Direction

Henry Blodget does a nice job of summing up Nasim Taleb’s comments on CNBC this morning regarding the current state of the economy, recovery and efforts to gear up for the future:

  • We’re all in denial
  • We’re replacing private debt with public debt. 
  • We’re not dealing with the cancer in our banking system. 
  • We’re not making the structural changes we need to make. 
  • We’re not being aggressive enough about restructuring debt (debt for equity swaps). 
  • Bernanke is a wimpy Greenspan sycophant
  • Obama’s rewarding the fools who got us here (Summers, Bernanke, Geithner)
  • The banksters are taking over again

Blodget says that he’s pretty much right and I would tend to agree with a couple of caveats.

Taleb’s prescription calls for a revolution in the way the financial system is organized as well as an equally paradigm shifting reorganization of business practices as well. This is not going to happen overnight, that’s just not the manner in which large, complex societies change. He’s right about denial but denial only works so long as the system can continue in a functional manner. Change comes through evolution as the facts of the new order trump the ability to deny its need.

In a lot of respects it amounts to two steps forward and one back or sometimes three back. In other words it’s a stumbling messy process but unless you want to yank all responsibility for finding a new way out of the market and rely on technocrats for a solution, that’s how you are going to get to the new world order.

Neither Taleb nor anyone else has the perfect plan. In fact, we can draw pretty easily from history the lesson that those espousing perfect economic plans almost universally muck up things quite badly. We need to move towards many of the things Taleb prescribes but we will have to do it through trial and error. It’s going to take time and when we do find something that works, I suspect it will be quite different than either Taleb or anyone else might have imagined.

Here is the entire interview if you care to watch it.

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