Black Swans And Interventionistas...With Special Guest Nassim Nicholas Taleb
Dr. Taleb, author of "The Black Swan," takes apart our foreign and monetary policies. Why do neocons and mainstream media keep pushing war and conflict? They face zero risk. This is something new in history. Those who decide on interventionism overseas are never harmed by the interventions. Plus...are we headed for a market crash that makes 2008 look like a picnic? And if so, what will the aftermath look like?
Dr. Taleb, author of "The Black Swan," takes apart our foreign and monetary policies. Why do neocons and mainstream media keep pushing war and conflict? They face zero risk. This is something new in history. Those who decide on interventionism overseas are never harmed by the interventions. Plus...are we headed for a market crash that makes 2008 look like a picnic? And if so, what will the aftermath look like?
Hello everybody and thank you for tuning in to the Liberty Report.
With me today is co-host Daniel Mick Adams.
Daniel, nice to see you.
Good morning, Dr. Paul.
You're good.
We have a very special guest today, a friend of Liberty and a friend that I've known for several years now.
And he's a famous person though.
He's really famous.
One of the probably the most famous people we've had on this program.
But he's a writer, an author, an investor, and he's well known.
And I think the one thing he's best known for is a book he called The Black Swan.
And that is Nassim Nicholas Taleb.
Nassim, welcome to our program today.
Thank you very much.
I'm very honored to be here.
Well, very good.
This is a special day for us because there's a lot of questions that we have for you.
And you have a very, very good understanding of economic policy and you made it work for you.
But you write about a lot of other things too.
In a recent article you put out, you used the word interventionistus.
And I thought, well, that's a pretty neat word.
It sounds like something I need to read.
And Daniel, of course, was fascinated with that article too.
But there's a lot of things that we can talk about.
I, of course, as Daniel is, we like to talk about foreign policy, but anything that you might want to bring up is fine, but we certainly want to cover as much many bases as we can.
And the one theme that I got from your book is that about predicting about risk.
And I find this very fascinating.
And the inability to predict risk of rare events.
Yeah, but the fundamental point is that people don't learn from the experience of others.
So someone who can harm others for a long time will never improve because he's not paying a price for it.
And that's not how nature works.
Nature works at the level of a seller level.
Well, you know, people who are harming others also end up harming themselves and eventually leave the gene pool.
So that's how nature learns because the species learn that way.
And here we have a class of people who recommend foreign policy and basically make all the mistakes in the book with impunity because they don't pay a price for it.
And you refer to that as skin in the game, is that correct?
Exactly.
Lack of skin in the game.
Now let's imagine that you had pilots who were absolutely unharmed by crashes, you see, and without a mechanism, and people are stupid enough to put them back on planes and then they would crash a plane, kill all passengers, and continue.
Well, that system would eventually lead to complete systemic destruction.
And that's what we have now is foreign policy.
Foreign policy is largely determined by a minority of people in Washington who have a mental defect, a complete mental defect, and they don't learn from the experiences of others.
They don't learn from anything.
For example, people who are recommending an interventionist foreign policy in Iraq recommended again the same thing, you know, to install democracy, so-called democracy, and we'll see what that means, in Libya.
And of course, they recommended, subsequently, the same thing in Syria.
Now, you know, people typically, I mean, I've been a traitor most of my life, people learn from their mistakes.
If you blow up, you're out of the gene pool.
And you end up with people who end up learning.
We don't have that with foreign policy.
And you bring the same people back.
So we don't have the mechanism.
And that comes, that's the result usually of a very centralized system that ends up being dominated by what we call the elites.
And these elites eventually destroy the system.
And they've done it once in Egypt, a far army Egypt, when it was a centralized nation state.
And they've done it once in China.
And they're going to try to do it again in America today.
So it probably would be safe to say that the neocons probably need a little skin in the game.
Maybe they would change their attitude.
And also it sort of fits my thought is that maybe this sort of explains why old people who don't fight wars are generally the ones who push us into war and young kids who have to do with all the fighting.
Unfortunately, too often those individuals don't do the fighting.
And then of course one thing that was always annoying to me was to run into the chicken hawks that we called them.
Yes, they were gun-ho over all this war, but they never dared put their own skin in the game, you know, at an earlier day, age.
And sometimes they'd get, and I don't fault them for trying to avoid the war, but I fault them for start being willing to support the war.
But when their numbers came up, they found ways to avoid the danger that they had to face.
See, I don't think at any time in history have we had as many people taking, transferring risk to others at no point in history.
If you read the history of the Roman Empire, you realize that most emperors, less than a third of the emperors died in their bed.
And had life expectancy been longer, even fewer would have.
So the emperors, many of them died in battle, and many of them were first in line in battle.
Like Julian was first in line when he died, when he was killed by a Persian spare on the frontier.
So we never had that before.
What we have today, so many people who sitting in the New York Times, a Washington office, or sitting, I don't know where, can dictate foreign policy at zero risk.
Well, you know, and of course, an air-conditioned office and comforts of life.
But we never had that before.
Two things that we need to figure out, that even in nature, you have a predator-prey game that has to include some kind of reciprocity.
It's never complete aggression.
But with these people, we don't have these breaks.
Daniel.
Yeah, and it's interesting.
It's not even that they operate with zero risk.
And I'm thinking specifically here of those who populate the think tanks along the Beltway.
As a matter of fact, when they do mess up, when things do blow up, they actually find themselves advancing.
There's more money from the defense contractors to fix the mistakes.
We're talking about yet another surge into Iraq and Afghanistan after the last several were such disasters.
So they actually even benefit from their mistakes.
But I found it was a little bit frustrating because I think you made the most compelling case against interventionism.
We try to make the case here on the show so much, but you really, you almost sort of boil it down into epistemological terms, the inability, the incapacity to acquire enough knowledge to solve problems where you have no skin in the game.
You're not part of the process.
You have no understanding of the cultures that you're operating in.
And the arrogance of the people in the State Department who will come up with another idea or the next idea, another one.
I think it's just so compelling, this whole idea of information, the inability to have information.
Yeah, I mean actually I even speculate that if you send the people in the State Department, you put them all on sabbatical and let them do what usually people, low hormone people like them do usually, which is pottery or whatever it is, and would have a lot more peace because they mess things up.
It is well known that in the early stages of a discipline, say medicine, you usually cause a lot more harm than good.
And it takes a long time for a discipline to start improving.
Now, meanwhile, these people manage to continue because at the macro level, you may never have conversions.
Like in medicine, if the doctor kills too many patients, at some point, he or she will have to stop.
Whereas in the micro world, you don't quite identify the source of the problem.
You cannot really zero in on who caused it.
So things can continue for a long time.
This is very dangerous.
This is the best argument against interventionism by saying that two things.
Number one, those who decide in favor of interventionism usually are never harmed by that.
And the second point, that in a complex system where you don't see cause and effect very well, you have to minimize things that can cause chaos and not maximize.
And these people don't get the point.
They're educated in the 60s and 70s or educated today, but with books from the 60s and 70s, where we still didn't understand complex systems.
Today we understand complex system.
And anybody who knows complex system would tell you this is complete nonsense.
I want to go back to this prediction of risk and these rare events.
I understand that, but what about the category of inevitable consequences of bad policy?
We do know that certain things happen.
If governments do ABC, it generally leads to bad unemployment and maybe price inflation, maybe weak economies, these sorts of things.
So there are some consequences that we can predict.
Is that part of this inability to predict rare events, or is it the precipitation of these things that government brings about and we don't know exactly when they're going to occur?
Actually, it's one way.
In anti-fragile, the last book, I mean, penultimate book, Skinny Game will be out, I guess, in six months.
But in Anti-Fragile, I explained that how systems become fragile because of government intervention.
How if you stabilize things artificially, they will look smooth and they will give you an impression of some kind of solidity, but in fact, they would weaken progressively and collapse in one block, sort of like what happened in Syria, what would happen in Saudi Arabia, that smoothing out, or what happened in the U.S. with the smoothing out of the economic cycle.
You smooth out the economic cycle because they think that things should be smooth and you fragilize it.
Of course, if you put a government official in charge of nature, they would try to eliminate the season because the seasons make no sense to them.
They want perfect thermal stability and they would destroy nature.
So that kind of over-stabilization and interventionism, these two mechanisms typically fragilize things in the long run.
Now we understand the process rather well, but Washington is sort of like dominated by people who are neither practitioners to realize that we don't fully understand the world, nor smart enough to understand complex systems and things that are second order.
Second order effects dominate in foreign policy and complex domain, and they only focus on first order.
You've talked a lot about the idea of the Ludic fallacy, the idea that you can't understand real life through gaming.
And as I was reading that, I was thinking of how much of our foreign policy is dominated by gaming.
You always hear this war games.
We're wargaming this issue.
We're wargaming the other.
They have this sort of set responses.
If this happens, then that happens.
But you've said this is an absolute impossibility.
It sounds like it would be a waste of time to do all of this wargaming and the other thing.
Yeah, I think that the best foreign policy and the best defense should be in trying to get involved as little as possible in things we don't understand.
That's the first level.
And the second one is, of course, to build defense, strong defense.
And with a long, and include in your defense approach, you know, that not just something that is physical, like military or building a physical thing, but other stuff.
Cybersecurity is important.
Actually, more important today than physical threats.
Cyber threats are more important than physical threats, given that our system is very fragile to these kind of things because of interconnectedness.
And also worry about biological warfare, which is vastly more dangerous than nuclear warfare.
So I think that a good defense policy would be the best one.
The first defense policy is to not intervene.
That's the first one.
Don't mess with other people's affairs if you don't understand them because you have consequences.
Like, I mean, I don't know if you remember, but the story of the Iranians, they're still upset because the UK and the US intervened to try to change the regime, and they still remember it.
And all they expect is some kind of explanation of what happened then and admission that it was a mistake.
But we continue doing things like that.
We continue trying to intervene as we did in other places.
So it's not like we just started with Iraq.
If you look at the history, you realize that we're actually weakening ourselves by intervening in places.
You create enemies, you lose markets, you lose markets for your products, you create hostility for no reason.
And we're not going to fix the world.
Let other people fix themselves.
And it could be that the best way to fix the world is to put the people from the State Department in some kind of summer camp for a while.
The best way, and things will get better.
Like for a long time, we knew that most of the efforts by the smart people in the community was, you know, in ancient times, was to distract the patient to avoid having the harm done by the doctor, you see.
Yet Roganic, except for surgery, doctors were shortening the life expectancy of patients.
Different Time, Greater Bubble00:04:17
It's the same thing today with foreign policy.
And it's almost an identical problem because in most cases we're dealing with a complex system.
You know, you challenge the quantitative economics as not being very successful and you're critical.
And it's that group of economists that frequently say, well, when there's good times, maybe some are saying it now, generally at the end of a cycle, they say, it's different this time.
Our charts show this.
It's going to be different.
It's perpetual wealth, perpetual growth.
It's different this time because our computers tell us this is so.
Could we play on that a little bit and say, well, maybe it is going to be different at this time.
Maybe we have a greater distortion and a greater bubble than we've ever had before.
And maybe the correction, when it finally comes, will be different this time.
Is that overstating a possibility?
Or would you think that is the problem?
I think along these lines, because the last crisis was worse than the preceding ones because the world was in a situation that was even more fragile because of interconnectivity and because of a larger role for what I call the empty suits, people in the Fed.
And since the crisis 2008, under eight years of Mr. Obama, what did we do?
We increased debt.
We basically solved no problem.
And they injected Novocaine in the system.
So they didn't numb the system.
And now we have high hopes that President Trump, who basically is buying the market on size, Obama bought the lows.
As Mark Spitznagel keeps insisting, someone should tell him that you're buying the market at top prices.
And now we're inheriting a situation of 20 trillion debt, say maybe 15 to 25 trillion, because there are a lot of hidden liabilities and a lot of some hidden assets.
And we have interest rates at zero.
You can't intervene when you need them.
And a class of people in Washington who got us here, no spinning game, they're still there, and they have no clue about what's going on.
So no, these times are maybe different in a scale of things because we put too much Novocaine.
And when a patient wakes up, you know, Novocaine may become ineffective.
So and we have had too much pseudo-stability.
Nassim, I wanted to ask you a little bit about the last recession.
When that hit, did you anticipate that things would turn out the way they did?
Some people thought, you know, the whole thing will go down and major events would have to occur.
Major events did occur, but we didn't have a new monetary system and they limped along.
So what was your anticipation back then?
Did you think that it would work out about the way it happened?
Well, I was expecting the system to fix itself by having more bankruptcies, which basically destroys debt and transforms it into equity.
What happened instead is a shifting of the cost of the mistakes, namely, you know, increase in debt and the insolvency of banks, shifting that burden from the private sector to the public sector.
That I did not expect.
Nor did I expect, for example, that in 2010, the bankers would pay themselves the largest bonus ever in history, thanks to Mr. Geithner's intervention.
So this I did not expect.
So I told myself, you know, they're putting a lot of Novocaine or they're putting a lot of painkillers.
And you can make a cancer patient look a lot healthier and at the same time let the tumor increase.
And this is what happened.
So will the system correct itself?
Maybe some structural change on the part of President Trump will give a boost to the economy, to the world, that would cancel out previous mistakes.
Unknown Territory00:04:05
I don't know.
This is rather unknown territory.
But on balance, I'm rather pessimistic.
Daniel, you know, in one of your more recent articles, you made a point that I think would cause a lot of alarm in Washington among the experts.
You said that had these interventions for the last 70 years in the Middle East, particularly in the case of Palestine and Israel, had they not taken place, had outside players not become so involved, they would have found a way in some way to work out the issues.
We've been involved for a long time, and I think that would terrify people to hear that.
Let's look at a situation.
1947, if the Palestinians didn't get, you know, if you let people decide, you know, fight or bargain, do things, they would have ended up, the Palestinians ended up settling with the Israelis.
1947, of course, 1948, we had another chance, and it did not happen.
And 1967, of course, and every time the Palestinian got the worst offer.
So it's sort of a situation where like missing an opportunity to miss an opportunity.
Now, why is that so?
Because in an organic system, people end up working out differences because you don't want to jeopardize your children's lives by playing geopolitics because of grand principles.
Like Saudi Arabia initially and other Arabs were prompting Palestinians to resist.
These guys are sitting in very comfortable homes and the Palestinians were in refugee camps.
So it's very nice to let someone else suffer for your own principles.
But people in general end up engaging in commerce.
And I have some familiarity with the area, with the Eastern Mediterranean, which has always been multi-ethnic, multicultural, and particularly the cities, the Mediterranean seaboard, whether Smyrna, Thessaloniki, Beirut, Alexandria, Sidon, Haifa.
You look at these cities, they had Armenians, Jews, Christians, different, I mean, Orthodox Christians, they had all these people, and they got along.
Now you'd wonder why did they get along?
Because they traded.
Because people had, but there was no state to come and determine how they should conduct their affairs, what principles they should follow.
People decided with their own preferences, and they traded.
And trade is the best peacemaker.
Now, what you end up having now is people play in geopolitics.
And I saw it during many wars when people play geopolitics, but the people on the ground don't really care about geopolitics.
They don't care if the Iranians win or if the other side wins.
They just want to have bread, a good vacation, beer in the fridge, or non-alcoholic beverages, a good life, not live in tents or live under the shelling.
So this is what I think, and I wrote a piece on it that was welcomed by both Israelis and Palestinians.
They all said, yeah, it's right.
You know what?
If they leave us to their own devices, we probably would have settled, or would settle now.
Just this idea of having Tony Blair and all these people try to build a career for themselves and, of course, eventually make some money on the side from claiming to be a broker.
It doesn't work.
You need skin in the game.
Let people skin in the game decide on both sides.
You know, I want to go back to the economy and the bubble that we're in and the correction that's going to come eventually.
Federal Reserve's Incompetence00:06:50
When it comes, give me an idea when you see that or how it's going to evolve.
And will that be a time when the whole system of the Federal Reserve be challenged and that there will be forced into some monetary reform?
Or are we going to limp along for another couple decades with patching up this system?
And if that happened, where we got to the point where the dollar was rejected and we had to do something, would it be the end of our financial world if we ended up with either no Federal Reserve or a Federal Reserve that couldn't monetize debt?
I mean, I think that, okay, if you were going to want to write a story of incompetence, you'd write that of Federal Reserve for the last 30 years, especially under Greenspan, who claims to be a libertarian.
I mean, I don't know which books you've read.
Definitely not the ones on my shelves here.
So Greenspan, after the crash of 1987, discovered that you can stabilize the markets immediately by lowering rates brutally.
And that's what he learned to do.
That was by like 300 basis points instantly and seemed to make the system do well.
And I doubt that's the reason.
I think that the crash was just market experience crashes.
And he continued using that hammer, you see, on everything he saw.
So eventually people start thinking that the Federal Reserve was the savior of the panacy, everything.
It is no panic.
And it did effectively create distortions.
And asset price inflation that is, you know, the asset price inflation didn't start under Obama.
It started under George Bush, or actually it was there before.
Lowering rates in such a manner leads to, of course, distortions.
People can't buy house.
So if we didn't have a Federal Reserve, we'd have been a lot better off.
The price of money is, you know, just like any good, it would have been negotiated between people and would have had its own cycles, but that's life, you know, cycles, and people adapt to cycles and they learn how to deal with things and they learn how to trade.
And now we've had these people.
And then they ended up with their monetary policy under Obama.
And we saw it here and in the UK that had the effect of, and you look at that, at some point, the price of real estate in New York, the median price, was monstrously down and the average price was monstrously up.
What does it mean?
It means that a few apartments went from 2 million to 10 million and the rest was drifting lower for the lower middle class.
So what they created is when you lower interest rates, people jump on assets, any asset that has a little bit of yield interest and then start paying off for these.
And that's not something they saw.
They didn't realize that increases inequality.
They didn't realize that low interest rates, we have no evidence that 1% interest rate or 0% interest rate is much better than 4% interest rate.
We have no evidence.
We have no idea how that works.
And whenever they use quantitative methods, they use statistical techniques that are neither robust nor particularly rigorous.
So I don't know on what grounds they're lowering rates, the lower rates, on what grounds they're acting that way.
So without a Federal Reserve, can we do okay?
I'm sure that currencies, just like other things, can be spontaneously created between people.
And eventually you may have some kind of organic order coming with electronic currencies, Bitcoin or some other coin or some other things that will replace government.
You see, you cannot have incompetence, serial incompetence, for a long time without some kind of pushback.
We have had an incompetence on the part of what we call the elite.
And then, of course, interventionists are just part of that larger elite of people who have no contact with anything.
Because of Lexicon, they gain no contact with reality.
And somehow we end up with rejects.
You can't be in business, so we're running our affairs.
And these metastatic bureaucracies start going in weird directions.
You can see in the IMF, the World Bank, all that stuff.
And Brussels, of course.
And now we have a pushback against them.
It started in India, continued in the UK, it hit in the US, and even in France.
When you think in France, how many votes did Le Pen collect?
Well, that's a lot of votes.
A lot of people unhappy with what's going on.
So we're heading in a direction of people wanting to have a direct control of their affairs without uberized control of their affairs.
And currencies may emerge spontaneously.
You don't need a government to set the price of something, and you can use anything to exchange goods and services.
Go ahead.
No, I was going to say, I think it's a great, great analysis.
And if you have a closeout on that, to finish that thought, and then we'll be needing to go.
Can you close that out for us?
Yeah, I would say that I'm okay.
When I said earlier, I was pessimistic concerning the state of financial markets.
It does make me pessimistic overall concerning the state of the world affairs because I think that the next future will be a libertarian dream.
We're going to be able to destroy what needs to be destroyed and build what can be built in an emergent, organic, self-organized way.
I think that it's a new era.
When Ron, when you ran for election, we were still victims of the New York Times.
The world has spent 50, 60 years where the news were one way, whereas traditionally, organically, news are two ways.
He who gets the news also transmits the news.
And we have that now on Twitter.
I think that the social media is bringing us back to the old days where you can have no control of, you can't have the control of the state or that class of people or the useful friends of that order, like the New York Times, CNN.
They cannot control us.
I mean, Trump was elected in spite of 263 out of 264 top newspapers wanting him to lose.
Social Media's Organic Revolution00:00:36
And they will continue.
So this is very, very optimistic because this will lead to many more things concerning how the world is going to be managed in an organic Hayekian way.
And I'm very optimistic in that sense.
Well, that's a wonderful way to finish our little program here on a positive note.
And I want to thank you, Nassim, for being with us today.
This has been very interesting.
I hope we can do it again someday.
Thank you very much.
I'm so honored to be here.
Thanks.
Okay.
And I want to thank our viewers today for tuning in to this very important interview with Nassim Taleb.