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CHRYSTIA FREELAND: OK,
we're back for our second Staying the Course session.
And as I mentioned before, our three CEOs for the first
session were sort of trading war stories of how terrible the
crisis had been for their businesses.
I think the two people we're going to hear from now, Nassim
Taleb and Ian Bremmer, are from the group that has had rather
a good war, as it were.
The pundits and the commentators who really--
NASSIM TALEM: The financial times.
CHRYSTIA FREELAND: Well, the financial times were
sort of on both ends.
Journalism wise it's kind of a good war for us, but we are not
immune to the economic impacts of the crisis, Nassim.
But I think that it's fair to say that for Nassim and for
Ian, this has been a good crisis in that they have really
been among the leading commentators about and
predictors of some of the events that have swept
through the world.
And that's why I'm particularly delighted
to be hearing from them.
Just before we begin I wanted to make one observation, which
is that Nassim and Ian have at least one important
thing in common.
Nassim growing up experienced the war in Lebanon.
And Ian, who I first met in 1992, like me, was a very close
observer of the collapse of Communism and the collapse
of the Soviet Union.
And one of my personal theories of this moment of great
economic discontinuity in the world is that it's something
quite unfamiliar to most of us who have lived these very
prosperous western lives.
I think that people like Nassim and Ian might be a little bit
better equipped than many of us are for the possibility of
radical change, and even radical worsening
of conditions.
We're going to run this conversation much as we did the
previous one where I'll ask Nassim some questions for 15
minutes or so, then I'll ask Ian questions for 15 minutes.
And then we'll have time for you to ask questions.
One of our two panelists said to me beforehand that Europeans
are very bad at asking questions and that's why
there was such a pathetic response earlier today.
So I'm now appealing to your continental pride in preparing
some probing question after we've had an initial
discussion.
I wanted to start by asking Nassim about an idea of his,
which really-- and this is sort of a rare honor for a thinker
to have a concept that enters the language, and that concept
is of course, Nassim's idea of the Black Swan, which I now see
people referring to all the time.
I wanted to ask, Nassim, if you could just define briefly for
us this notion of a Black Swan event.
NASSIM TALEM: Thank you.
Thanks for inviting me, and I'm honored to be here
for one simple reason.
When I was asked, when I described first when nobody
cared about Black Swans, to describe a black swan and to
give an example of a modern black swan, you know
what my example was?
What do you think it was?
CHRYSTIA FREELAND: No idea.
NASSIM TALEM: Google.
CHRYSTIA FREELAND: Google is a Black Swan?
I thought Black Swans are bad.
NASSIM TALEM: At no time in the history of the world did
someone go from zero to the most powerful-- sorry, say that
they're the most powerful company in the world.
From college dorms to Google in no time.
It happened very quickly, which tells you something about the
environment, the complexity in the environment in
which we live.
So Black Swans are not necessarily bad, but so
Google's a positive Black Swan.
The internet, I'm still not sure whether it's positive or
negative, but it definitely is a Black Swan.
Now what is a Black Swan?
Just like the bird with an exception, nobody
thought it existed.
I define Black Swan-- capitalizing Black and Swan--
as an event that is both unexpected, based on
information, or by some observers and a
very high impact.
It doesn't have a high probability of taking
place, like a discovery.
You know, you have hundreds of thousands of people searching,
and discoveries have low probabilities they can place.
However, when these take place they can be of massive impact.
So that's my definition of Black Swan.
And I discovered something else which drove me into psychology
because I said, how come people don't realize that the world
is dominated by Black Swans more and more?
What kind of mental disorder makes us ignore these?
What kind of education are we getting at school that makes us
narrate backwards history to make it smooth and
understandable when history is completely dominated
by Black Swans?
CHRYSTIA FREELAND: And do you think we, as humans, are bad at
noticing Black Swan events?
NASSIM TALEM: We are bad at understanding the concept, at
understanding how little we know because we tend to
overestimate knowledge.
We have this chronic inability to accept that there
is uncertainty.
That there is that much we don't know and
that little we know.
And especially intelligent people.
Now I'm starting to study autism and IQ and research on
systematizing minds and I realize that people who are
excellent engineers are people who are not capable of
understanding uncertainty.
And IQ tests, you have four questions, multiple choice
questions-- four questions, and there's no ambiguity
There's only one answer.
The real world is vastly different.
I mean the reason is that not only we humans have a
propensity to not want to understand uncertainty, but
that our lack of understanding of uncertainty seems to
increase with what we call IQ.
Which tells you that people at the top don't quite get that.
CHRYSTIA FREELAND: That the smarter we are the less good
we are at understanding this crucial thing.
NASSIM TALEM: Uncertainty and there's some blindness
to some concepts.
Like number one, history is not smooth.
In history books, of course, it's narrated backwards and
we have explanation of why something happened
after the fact.
But before the fact it's not smooth, and it
jumps, it doesn't crawl.
Yet when we read history books it's smoothed out, made to be
very linear just like a novel.
It's not.
The world's not like that.
So it makes us underestimate what can happen, underestimate
how bad changes can be, or how positive it can be, and how
quickly they can occur.
Now the Soviet Union of course, is something--
the transformation took place very quickly.
But think of the first war.
Think of Europe in 1913 versus Europe a few years later.
It was unrecognizable.
And that's one of 1,500 Black Swans you can see in history.
So we're living now one, and you have of course, positive
Black Swan-- the good ones, like Google of course, and
discoveries and the virtuous things that are unexpected.
And then you have negative Black Swans or the first war,
and the crisis that have not really started in my opinion.
Because negative Black Swans tend to cascade.
CHRYSTIA FREELAND: The crisis hasn't really started?
NASSIM TALEM: Has not really.
In my opinion it's just the beginning.
CHRYSTIA FREELAND: So all our optimism of our car and phone
and retailer guides-- they're wrong?
It's going to get worse?
NASSIM TALEM: Of course, OK, think about it.
Why do we have to listen to anyone?
OK, given that there were close to a million people officially
defined as economists in the world.
A million people.
With how many trillions of pieces of information?
How many textbooks?
How many of them saw the dinosaur in the room that were
sitting on a pile of dynamite with this debt level and
these hidden risk buybacks?
How many?
Five out a million?
These are the people who define themselves as economists.
Plus you have the journalists, the commentators, people
who think they can understand the world.
And these probably, you have to add another
30, 40 million people.
So here we have a pool of close to 40 million people, how many
saw the elephant in the middle of the room?
So we got a problem, collectively and individually.
Sometimes the cab driver individually may detect that
there's something wrong with this hidden risk, the tripling
of debt levels; with a world that has changed dramatically.
The world has become less predictable because
of complexity.
Google was not something that anyone predicted, and had you
predicted Google in 1992 I think or even before or even
after that, if you told them these college dorm people are
going to have a company that's going to run the world
people would have called an ambulance right away.
Then we continue trying to predict the future not
realizing that events that are dominating the world today
were not predictable.
CHRYSTIA FREELAND: OK, so now I'm going to go back to a
point you've made, Nassim.
You've just told us that's it's very difficult and dangerous to
predict the future but you made a powerful prediction a moment
ago that this is just the beginning of the crisis.
So this is on YouTube.
We can all go back a year or two from now, see
if Nassim was right.
What's going to happen?
NASSIM TALEM: OK, let me give you the reasoning I had
before the crisis, and it still applies today.
I said people can't really predict Black Swans, but
I can identify who is more fragile to them.
The western economies, particularly because of
debt, were a lot more fragile in my eyes.
Particularly that had anything that's built on methods,
statistical methods analyzing the past, anything-- number
one, the economic establishment is completely incompetent
because I showed in a Black Swan that the risk methods are
like astrology-- without the elegance of course.
So here you have someone flying a plane not realizing
there can be storms.
Can't you predict that that plane eventually will crash?
That was my reasoning.
I'm looking at the data and facts on a table and I see
that nothing has changed.
CHRYSTIA FREELAND: Haven't we seen some crashes?
Haven't we all adapted?
I mean, I bet you everyone here has adapted their personal--
NASSIM TALEM: Adapted?
CHRYSTIA FREELAND: --behaviors and their professional
behaviors quite radically in the past year.
NASSIM TALEM: Look at it though, you still have
Greenspan-- Bernanke.
The other guy, Bernanke who's blatantly incompetent
because he called it
the great moderation when you had this huge buildup
of hindrance by banks.
There was an elephant in the room.
CHRYSTIA FREELAND: But he's changed his behaviors.
Same guy, but he's doing different things.
NASSIM TALEM: I mean, how can you have in charge the
pilot who crashed the plane still running the show?
And there's still economic establishment and now after
the fact of doing theories.
Let me continue all right?
It's worse.
You have Obama building a budget.
CHRYSTIA FREELAND: He's new.
You can't say Americans--
NASSIM TALEM: Yeah, I understand.
CHRYSTIA FREELAND: --didn't change their president.
They did that.
NASSIM TALEM: He had this click of incompetent
people around him.
And he has this budget--
CHRYSTIA FREELAND: The click would be Larry Summers,
[INTERPOSING VOICES]
those people?
NASSIM TALEM: You know I don't want to name names.
Yes.
So it's on YouTube.
CHRYSTIA FREELAND: Thank you.
NASSIM TALEM: I want to name names.
And these people don't realize they're using the wrong tools.
That the fragility of these projections that we have on
which we depend-- in other words, if you don't have the
growth they think we're going to get-- think of what would
happen to the budget deficit in the United States.
That's number one.
Number two, they're fitting their stress testing-- I don't
know if you've heard that banks did stress testing.
Now that would be the equivalent--
CHRYSTIA FREELAND: If you haven't, go back and read
your back copies of the Financial Times.
NASSIM TALEM: Of course.
There's something called stress testing.
Stress testing is the equivalent of taking a bridge
and having a truck drive on it.
Now how do you stress test?
An engineer knows that you don't stress test that way.
That's not a real stress test.
The system is very fragile.
So what may happen is two things.
Either these events, I mean, they're think going to have
recovery because in the past recessions they've
had recoveries.
This is a completely different world.
They don't understand it.
It may be that we are in a world that resembles what we've
seen before, but there's a very high probability of
it being wrong.
If we're wrong two things can happen-- massive deflation.
In other words you have a total collapse and their policies
are not going to go anywhere.
Or they're going to have massive budget deficits.
The more you study economics the less competent one is
going to be at understanding what's going to come next.
Assume we're in a depression.
The world's different.
Two examples I give-- the first one is you have this device
called Blackberries.
I'm sure about half of you have one.
I'm sure-- 90%.
But of course, you don't use it now.
That Blackberry bankrupted Iceland.
CHRYSTIA FREELAND: Why is it the fault of this nice
Canadian company that Iceland would go broke?
NASSIM TALEM: Because in the past-- you know you have
fads in economic life.
Economic life is based on crowd movements and fads
and things like that.
When you had in the past, we used to have runs on a bank.
These would happen in the very progressive and slow way.
It would take a long time, and gives you enough time to change
your mind because you're going to have to take a bus to go
and take your money out.
Today you bankrupt the country, you can take your money
out using Blackberry.
So we can have a planetary wide fad take place.
Like the Harry Potter mechanism could not have taken place
in Victorian England.
You see?
Not the whole planet reading the same book.
CHRYSTIA FREELAND: We did have whole countries, right?
Charles Dickens existed pre-internet.
NASSIM TALEM: I understand, but the whole world did not read
Charles Dickens at the time.
So you don't have that planetary wide effect that
gives you big spikes.
So these big spikes create more uncertainties.
It's very hard to predict the behavior of economic
[UNINTELLIGIBLE].
So that's the first one, is what I mean is the internet and
this interlocking relationship between countries make
variables take more extreme values.
And this is easy to show mathematically.
Another example is that cancellation of orders in New
York-- because the internet we have so much interlocking
relationship, cancellation at order in Bloomingdale's can
lead to a shut down of a factory in China within hours.
Never had that before.
So things react very quickly.
It makes for more unpredictability.
That's the first one.
The second one, today it looks like a lot of this
economic growth was fluff.
So numbers can go down a lot more.
How many cars do people need to buy?
How many flat screen TVs you need to buy?
All you need is your laptop, and a little bit of fresh
water, and some protein.
So we build--
CHRYSTIA FREELAND: I'm sure Google will be pleased that
you included a laptop along with water as one
of the necessities.
NASSIM TALEM: It's necessary-- before the water.
So you have this huge economic growth based-- it's more much
more fragile because people can compress their expenditure a
lot more than we did in the 30s.
So we can fall and GDP can fall a lot more.
So why using the past as indication?
The past is not similar to the present.
So these are the elements.
I would have been a lot more optimistic had I seen
governments understand the complexity of the world.
But I spent some time in Davos and I came back wondering what
was going on because I thought before Davos said, we really
had people in charge who knew what was going on.
And I was shocked, completely taken aback.
But it's like people falling off a cliff of a mountain, and
they're looking at how they're going to miraculously rise back
up, instead of looking at where we're falling into because
they're too scared.
We're falling into something we have never seen before.
This makes me a lot more negative on the system because
the system is very fragile.
So either we're going to have massive deflation
or hyperinflation.
Governments are not really in charge.
CHRYSTIA FREELAND: I'm feeling now, as I usually feel when I
read what Nassim has written or I talk to him-- the same sort
of scary, but pleasant thrill of watching a horror movie or
reading one of the Grimm Brothers' children's stories.
So there's a pleasure to it, but also a fear.
I've come from optimistic New York yesterday-- to move you in
a final question, maybe a more positive, what can we do
with this knowledge?
So if we are accepting this notion of Black Swans and
integrating it into our thinking, how useful is it?
What can we do about it?
You say these are rare events, you say they are very hard to
predict, so how can we make actual decency use
of this idea?
NASSIM TALEM: Yeah, thanks for the Financial Times who saw
value in my idea of of having 10 principles.
And I said 10 principles for a Black Swan robust world, which
suddenly was changed by financial times from robust to
free, Black Swan free world.
You guys are a lot more optimistic than I am.
I mean, you need to build robustness--
CHRYSTIA FREELAND: We're just sensationalized a little bit.
NASSIM TALEM: You need to build robustness to the Black Swan.
You have a negative Black Swan you need to be robust to them
while open to positive Black Swans.
This crisis is not that bad.
CHRYSTIA FREELAND: So we need to create a system which
can endure negative Black Swan events?
NASSIM TALEM: Exactly.
I always use biology as my model.
Biology doesn't have to big to fail.
The largest animal out there is what?
It's either an elephant or a--
IAN BREMMER: Blue whale.
CHRYSTIA FREELAND: Whale.
NASSIM TALEM: A blue whale.
If we went here on exhibition to kill time and shot an
elephant or blue whale, I don't think it would matter much for
the ecology of the planet, no?
That's the biggest one.
So there's nothing too big to fail.
but if we went and shot down a bank--
CHRYSTIA FREELAND: Lehman Brothers.
NASSIM TALEM: --like Lehman Brothers, for example,
you know what can happen.
You need to build a system that is more resilient to-- for
long-run, biology cleans up these things.
So what we're all witnessing here is simple, very simple
evolutionary rules, cleaning up people.
The only problem is that instead of bankrupting the
economic establishment we're still keeping these people in
place to make more mistakes.
That's what makes me negative.
So we should build a world that resembles the biological
environment with no too big to fail, no moral hazard.
In other words, bankers make a lot of money and they keep the
bonuses, but when they lose-- it's socialism-- we
pay for the losses.
So it's privatizing--
CHRYSTIA FREELAND: Privatizing the game.
NASSIM TALEM: --profits and socializing losses.
No vicious incentives to do that.
Another thing I was suggesting is to definancialize economic
life because a lot of the growth we've seen comes from
financial hype that eventually we're going to pay for.
I mean, nature doesn't like that.
The other concept is leverage.
Nature hates leverage.
Nature does the opposite of leverage, and the typical
example I give is something called functional redundancy.
Nature likes redundancy, which is the opposite of leverage.
So if banks had capital on the side they would be still here.
And now I'd be talking about positive Black Swans and
how great Google is.
Unfortunately, banks don't get the point.
I mean, economic life has the opposite of redundancy, and
economists would say, well this is idle capital.
Like someone saying you have, well, two eyes.
If you had one it's too much.
Take it out, it's inefficient.
So give it to someone else, you have two of them
and only need one.
CHRYSTIA FREELAND: Two kidneys .
NASSIM TALEM: There you go.
Two kidneys.
Why two kidneys?
Spare parts are heavy.
So we need to understand redundancy and actually ensure
survival in the long run.
Finally, the governments have been propping up fragile
things that should break.
Let things break, and break quickly.
So in a way, I think there's a silver lining--
CHRYSTIA FREELAND: Should we let them break when they're
big or break when they are--
NASSIM TALEM: We should learn.
Citibank was prevented from going bust in 1982.
Citibank or Continental Illinois or other banks-- money
center banks gone bust in 1982.
I think bankers will have a little more IQ.
Unfortunately--
CHRYSTIA FREELAND: Break things when they're small.
NASSIM TALEM: Break things when they're small.
But remember one thing, and here, since we have the Google
people here that why death is bad and why there's an
environment-- economic life that does very well
without debt.
Think of the bubble of 2000.
Nobody really suffered.
We had no debt.
Capitalism functions by fads.
Let fads develop.
They're harmless when they're financed by equity.
They're very harmful when financed by debt.
We have a model right in front of us.
Just remove the economists and look at the how biologists
understand the world, and you see it's very obvious, very
simple, it works well, capitalism competition
does a good job.
Once you have someone on top trying to fiddle with it, like
saving banks, like Greenspan messing with systems, then we
should learn-- look at hedge funds.
I think that if we replace banks with hedge funds, are
we subsidizing any hedge fund today?
Yet you have hundreds, actually thousands that failed.
No, we're just subsidizing big dinosaurs banks.
But hedge funds, like restaurants are ecologically
sound because they go bust without making the papers.
You want a system where no company would go bust and
make it to page one of the Financial Times.
Maybe page 25 if you guys have room that day.
CHRYSTIA FREELAND: OK, well since Nassim is depriving me of
great headlines by creating a vision of a world where
bankruptcies don't make the front page, I can't resist
reminding you all that if you want his 10 rules for a Black
Swan free economy they're all available on our website.
He wrote a great piece about it.
And now I'm going to turn to Ian.
Ian, what I wanted to start by talking to you about is one of
the big themes of your new book, The Fat Tail, which is
about the contribution of politics to instability.
We've all been necessarily, I think, inevitably
focused on economics and finance right now.
What about politics?
Does political risk still exist?
Is it playing a role in all of this?
IAN BREMMER: Well, unfortunately I don't need to
discuss that one too much anymore because I think I used
to have to justify my existence in saying, why does
politics matter?
When I first started going to Wall Street back in 1997,
'98 they said, you're an interesting guy, but we don't
hire political scientists.
We have economists and strategists and physicists
to talk about all this.
So increasingly, the big political risks and the big
political upsides were thought of as Black Swans.
And my point is that actually they're not Black Swans,
they're grey swans or maybe they're blue whales.
They're things that are really, really large, but that we
can get our hands around.
And I think there are two structural changes that we've
been experiencing over the last years that have contributed to
the increase and importance in politics of the global markets.
The first, on the geopolitical side is just that look where
energy is coming from.
It's increasingly unstable parts of the world.
That's structural.
So it's not the North Sea, which is becoming more mature
in the Gulf of Mexico, it's the Persian Gulf.
And dangerous technologies are becoming more diffuse, so rogue
states and organizations have more capacity to create
market volatility.
If we're talking about ballistic missile technology
or improvised explosive devices or nuclear weapons.
Amara's Law applies to them as well.
That's one area.
But now we're seeing the second area, and the second area
really brings this home to everyone.
Which is that the rise of state capitalism matters.
That's been coming for a long time, but globalization
has been more important.
So for the last 20 years there was one thing you could not
afford to miss, and that was that multinational corporations
were increasingly taking advantage of global markets of
scale, maximizing profitability.
Sometime short-term to our chagrin, sometimes long-term.
But that was the story.
And at the same time you had national oil corporations
becoming more important-- rise of OPEC and the oil shock.
Then you had emerging markets becoming more important, and
state owned enterprises, and privately owned national
corporations growing with that.
And then you have the rise of sovereign wealth funds-- been
around for decades, but there was no term, sovereign wealth
fund, till five years ago.
And then you had September, and Lehman going on.
And suddenly the places that were important were the
governmental capitals, the political capitals, not
the commercial capitals.
So we used to make money in Dubai, now Abu Dhabi is
going to determine who the winners and losers are.
I live in New York.
We used to think that was the financial capital of the world.
It's no longer the financial capital of the United States.
Washington is, and the same thing is going on from Shanghai
to Beijing and on and on.
This challenge, which Lord Mandelson talked about this
morning, and he's hoping that we can somehow resolve it.
Is that there is increasingly going to be a very strong, in
some cases a primary role, played by the state in
determining who the winners and losers are.
Now I happen to believe that in the United States and Great
Britain and other developed states that's a relatively
temporary phenomenon.
We'll go back to business, more or less, as usual.
Staying the course.
But I also think that China's going to stay
the course as well.
And the Chinese governmental response to this crisis, and
they're first out of the recession globally, has
been our system works.
I was talking to a Chinese delegation on Friday and the
head of the delegation, [UNINTELLIGIBLE], came
over to me and said, so Ian, what do we learn?
What lessons do we learn about the right role of the state in
the economy, given that the western model has failed?
We need to be able to answer that question, and we need to
answer it in the context of a G20, not a G7 or a G8.
That's going to be challenging for us.
CHRYSTIA FREELAND: And do you think that that point of view
is also being heard in the west?
We had Mr. Bernabe in the previous panel talking about,
very admiringly, about how the Chinese response to the crisis
had been more forceful and quicker than that
of democracies.
I often hear on Wall Street actually, very odd to hear from
Americans, but a sort of yearning for authoritarianism.
Kind of wishing that the government could act quickly,
ruled by technocrats who think about the long-term in the
way that the Chinese do.
Do v you think that we're seeing that sort of political
influence on everybody else?
IAN BREMMER: Short-term.
I mean, clearly in the United States the model has been the
government that governs best is the one that governs least,
and the state is coming back.
But I also believe that right now western governments are
caught up in their own stuff.
So a lot of Americans aren't really thinking about
the Chinese model.
In fact, one of the silver linings of this crisis has been
that Americans aren't blaming anyone but themselves
for the crisis.
They're not blaming the Chinese, they're not blaming
the Gulf, they're not blaming the Russians.
They're actually blaming greed and lack of regulatory policy.
And they said, OK, we got carried away with ourselves,
and now we need to focus on the U.S. But there's not a lot of
bandwidth in Washington right now to do global.
I mean when Obama won the election, but before he
actually took on the presidency he was in Hawaii and he was
asked-- at that point the Israelis were engaging in the
bombing invasion of Gaza and he was ask what he thought
about the Bush response.
He said, you know, there's only one president at a time.
I don't want to comment on that.
Now I don't remember him saying that when he was asked about
the response to GM and bankruptcy because
we've got priorities.
The United States has priorities.
The Europeans have priorities.
And we are increasingly in an environment where we're going
to see an absence of global leadership.
The Chinese don't like the G2 concept anymore than the
Americans do because it implies responsibility and blame.
And right now they want to just kind of stick to their knitting
and get their economy moving as fast as they possibly can.
But I think that what we're going to see is that on the
major global challenges, whether we're talking about
collective security in Afghanistan, Pakistan, Iraq;
whether we're talking about preventing nuclear
proliferation, whether we're talking about dealing with
climate change, or whether we're talking about creating
effective global financial architecture, we're going to
see an absence of leadership.
Which is going to create an inability to deal with
significant crises as they hit, until they become--
CHRYSTIA FREELAND: At a global level?
IAN BREMMER: At a global level.
And one of the things that Rahm
Emanuel said--
CHRYSTIA FREELAND: So you weren't excited by the G20,
everybody coming together, this beautiful tableau, a more
concerted international response than we've
seen previously?
IAN BREMMER: I was very excited, but
I'm usually excited.
I'm a political scientist.
It's youth, it's really youth.
I was in London.
I met with a lot of the delegations.
I mean, I'll say that I talked to the Japanese delegation on
the sidelines and they were like, you know we got one
sentence in that was translated, and we didn't
believe the trade credit was going to work, but we did it
because everyone else want us to.
They're all talking about free trade, but they're all actually
putting protectionist legislation.
Seventeen of the 20 that showed up had been actually
implementing those policies.
We've all seen the FT headlines on that.
CHRYSTIA FREELAND: But it's not the Great Depression.
IAN BREMMER: No, it's not the Great Depression.
CHRYSTIA FREELAND: It's not Smoot-Hawley right?
IAN BREMMER: In a sense, it's precisely the fact that it's
not the Great Depression that means that we can go on
with business as usual.
I mean, the big lie here is not that the G2 is bad, it's
that it's a [? clootch ?].
No one is talking about creating new effective
architecture, we're dealing with the IMF because
that's what we have.
I think that when Rahm Emanuel, Obama's Chief of Staff came out
and he said, this crisis is true great an opportunity for
us not to take advantage of.
He's wrong because there's a lot of complacency
in the United States.
Republicans and democrats are engaging in politics as usual.
It takes just as much time to get political appointees
confirmed in the Department of Treasury.
This is not an American government that believes that
this is the end of times.
It's an American government that believes it's a serious
recession, we'll get through it, and then we'll kind of go
back to business as usual.
CHRYSTIA FREELAND: So is your bottom line, Ian,
as bleak as Nassim's?
That the crisis is actually worse than we think and
it's going to get worse before it gets better?
IAN BREMMER: No.
My bottom line probably is more optimistic than that.
Though I think that there's going to be greater social
instability as, in particularly, emerging
and frontier markets.
That's a lagging indicator that will create some crises.
If I'm talking to corporate executives today I say, your
five year scenarios are useless unless you're talking
about demographics of military spending.
If you want to talk about economic and political
development and stability, you need to look at 12, 18 months
and you need to recognize that your breadth of potential
scenarios and discontinuities is vastly greater than it used
to be because of the potential impact on these lagging impact
of social revolution instability, radicalism,
and the rest.
But I also think it's precisely because it's not that bad be
from a political perspective and because American and
European and Japanese institutions are so stable that
we don't want to see lots of strong changes that will allow
us to take real pain.
In other words, the one thing I really strongly agree with
Nassim on is the fact that we're not going to allow
things to start crashing when they're small.
Because the American government is not prepared to stand by and
watch the American consumers and citizens take real pain.
And we absolutely saw that with the initial stimulus right
before the election.
Unfortunately they happened at the same time where you had
congressman that were saying, we're not going to pass this
because we're about to run.
Give us another $125 billion in earmarks please so we
can make sure our own constituents are happy.
This was not a sense of urgency.
This was a sense of we're going through our electoral process.
CHRYSTIA FREELAND: OK, I would like to ask you whether you
don't think that the fact that Chrysler actually was allowed
to go bankrupt doesn't somewhat contradict that view?
A company being allowed to fail.
But we have five minutes left for questions, so are you guys
going to do a better job than you did in the first session,
and actually ask a few questions?
Anyone want to challenge the idea that things
are really dreadful?
AUDIENCE: I have a question for Nassim, and first of
all, I think your book is brilliant and at least as
self-confident as you are.
So if one million economists-- I'm [UNINTELLIGIBLE]
with the German Publish [? Access ?]
[UNINTELLIGIBLE]-- if one million economists were wrong,
if the divorce leadership is falling off the cliff, and if
we are just in the middle of the horror movie, I don't quite
see the good guy who's going to save us at the end.
And your suggestions how to do that sounded good in theory,
but how can they actually be put into action in reality?
NASSIM TALEM: It's a very good question because to think that
we need to implement things and people go immediately to the
state to implement things.
But I have some news about that state.
When I was hearing-- let me tie it in with what you're saying.
When I hear people talk about nation state and governments
they just don't realize that in the Google age governments are
becoming increasingly irrelevant because the
nation state is dead.
Think about it.
George Bush nationalized the banks.
What can government do?
They can have an army to go invade some country
with pictures.
They can control the flow of people into their country.
But now we have free flow of information and we
have free flow of money.
What did it lead to?
It lead to the United States depending on
UBS not going bust.
Because had UBS gone bust, can you imagine the consequences
of United States?
Be vastly greater than Lehman.
So where's the nation state?
Given the absence of nation state who's going to
implement anything?
We're caught in a model of nation states in a world that
we created that has Google, information flowing across
boarders, and money.
Nobody knows-- do you know where this glass was made?
Probably can't figure it out.
Not even China.
China program by someone in Russia or something.
This was the artist in Venice probably, who designed it.
We don't know.
Pretty much we killed the nation states and
kept governments.
So this is a problem.
Who's going to implement it?
Definitely not the IMF.
Definitely not these guys.
There's two many Ph.D. in economics and too
many charlatans.
Definitely not these super organizations.
I don't know.
I'm very pessimistic.
CHRYSTIA FREELAND: I'm just going to ask Ian to very
quickly respond to this notion that the nation state is over
because Ian was telling us that we're actually seeing the rise
of state capitalism, which suggests to me that the nation
state is very much alive and well.
So why is Nassim wrong?
IAN BREMMER: Well, I mean I think he's not wrong about
globalization and where things are made, but in term of
capital flows, certainly governments in many parts of
the world are trying to reassert themselves.
I look at sovereign wealth funds in a
place like Abu Dhabi.
It used to have the portfolio managers trained in the west
that determined how to allocate capital on the basis of what
would be maximally profitable.
Now they're capital constrained.
Those guys have been marginalized or fired, and
the political leaders are determining where
to put their money.
And by the way, number one is Dubai, to ensure it's stable.
Number two is the other Emirates like Ras al-Khaimah
to make sure they're not too annoyed.
And then we're looking at the GCC.
And then they start looking at maximizing profitability.
Same things happening in Russia.
Same things happening in China.
In Russia, have we seen greater consolidation of the state
over the economy over the last 10 years?
I'd certainly say yes.
In China, I would suggest we're now seeing the state starting
to assert itself more because as a consequence of this
crisis, a lot of companies have gone bankrupt, but most of
those companies are ones that aren't very big and they're not
very connected to the central government.
In fact, I would argue China's becoming more state capitalist
now and we're just starting to see the tipping
point, not less.
We'll look back in 5 or 10 years on YouTube and
see it we're right.
But we know Google has problems with the Chinese state.
Now it may well be that Google's problems with the
Chinese state flow from a Chinese nationalism that
actually exists among the Chinese citizenry.
That's a bigger argument that we can talk about.
Whether technology is really decentralizing and
democratizing or whether it's just a multiplier that actually
brings forth what the culture would absolutely want
for themselves.
I love that content.
But the real question is there were a lot of states out there
that believed that even if long-term they're dead, right
now they seem to be doing OK.
And most investors aren't looking 20 years, most
investors, if we're lucky, are looking 20 minutes.
And so, as a consequence, for these 20 minutes, I think the
nation state is actually on the bounds.
CHRYSTIA FREELAND: OK, we'll take a quick,
final question please.
AUDIENCE: Yes, another question for Nassim.
It follows from your book, from reading you book, The Black
Swan that using computer simulation for forecasting
is most often a pointless exercise.
As you mention, if you have a complex system because of the
possibility of Black Swans the forecasting won't work.
The question is what do you think about computer
simulation as games?
As in the war game tradition, as a way to train
and to get prepared.
You could [UNINTELLIGIBLE PHRASE]
and his comparison of Greek and Chinese philosophy which is
also based on the idea that forecasting is futile, but
being prepared counts.
So do you think that there is another venue for computer
simulation as games?
NASSIM TALEM: Yeah, definitely.
It is necessary to do counterfactuals and to
simulate by computers.
The problem is the forecast you get today, like social security
and oil prices, people produce a point estimate.
As I wrote in The Black Swan, don't cross a river if it's on
average, four feet deep because you need a lot more richer
information than one point estimate.
What roads, what scenarios can lead you there?
So it definitely would be much enriching.
Point estimates are dangerous.
Scenario analysis can be dangerous because it closes
your mind to things you have simulated for.
There's a psychological element that people take more risk
after scenario analysis.
But if you did what you're-- I mean, there a lot of complexity
theories who do simulations, not necessarily to forecast
what will happen, but to [UNINTELLIGIBLE]
systems to see what may happen.
It's a necessity.
But I haven't seen it implemented very much.
CHRYSTIA FREELAND: OK, I'm afraid that we're going to have
to bring it to a conclusion there with apologies to any
economists in the audience.
I'm sorry that you've taken such a beating.
Rest assured that financial journalists have also been
beaten up quite a lot recently, and probably the worst off
are investment bankers.
I don't know if we have any here, but you're the guys
who have been flogged the most in the public arena.
And I would like to really thank Nassim and Ian.
I personally could have listened to their views for
at least another hour, but the good news is we can
all read their books.
So thank you very, very much.