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At the New Yorker summit Robert Shiller and Nassim Taleb discuss what to do in such times when the spirits aren’t brave at all. 

Shiller, a Yale economist who famously predicted the last two booms also wrote a book called “Animal Spirits in which he posits that shifts in the economy follow the irrational actions of people. Analagous to Taleb, only with a different emphasis. Shiller also notes that his work was seen as “flaky” by other macroeconomists as he was, most likely, replaced as a professor of economics at Yale by Timothy Garthner’s administration for not agreeing with them… He basically says that everyone got too obsessed with data and that economics got too “scientific.”

Taleb, who needs no further introduction on this website, except of being a bottom-up practitioner, essayist, options trader, philosopher and also a professor of Risk Engineering at N.Y.U., and at the Wharton School; says the economy is not scientific at all. “Economics made astrology look excellent” as a science, and he compares the discipline to 19th century medicine where going to a doctor increased your chance of death because they believed in i.e. bleeding etc. In other words, people trusted these experts not knowing that their theories where bogus and based on unscientific assumptions. The same is the problem with economic experts nowadays.

They both do agree, it’s only that Taleb dares to take a more radical point of view concerning what the solution is. But nevertheless, I’m not sure that Schiller completely understands where Taleb is coming from eventhough he does agree with him on the reasons that got us here. But hey, Schiller is a top-down economic expert while Taleb (also being one using the academic jargon but in exactly the opposite way), having the luxury of having several 0’s more on his bank account, is deliberately provoking the whole economic establishment by calling them ‘academic frauds’. And rightly so, if you ask me.

So Taleb provides his non-expert advice, which is often misinterpreted: “We need to get rid of the “experts” who didn’t see the crisis coming!” — even a cabdriver, he says, can see the problem that Bernanke didn’t.

They both also agree that debt is destabilizing, and we need to reconceptualize how we treat and use it. Taleb suggests turning all debt to equity—the dot.com equity bubble resulted in worthless stocks, but didn’t leave us all indebted. He suggests we could do the same with housing.

Taleb notes that globalisation and the Internet have made the nature of debt different (including our societies) as a run on the bank can take seconds, or as one can bankrupt Iceland with a BlackBerry… Everyone who has read his book ‘The Black Swan’ knows where he’s heading, namely that all these phenomena are inevitably contributing to an evergrowing complexity in our society. Therefore, we need to be way  more cautious when making predictions, especially in the financial markets but generally in every social situation.

“I don’t know what better regulation means,” Taleb says, after Shiller dismisses his claim that regulators don’t work. Taleb calls Shiller a “top-down economist” and refers to himself as a “bottom-up libertarian.”

Shiller defends regulators, and Taleb says they are easy to dupe and asks, “Do you know any intelligent people who became regulators?” Shiller defends them again; says he’s met smart regulators.

Taleb worries that Bernanke will make the problem worse and cause massive inflation. “Someone who crashes a plane, you don’t give them a new plane!”

Shiller amusingly ends with: “I don’t usually end up debating him!”

Here’s the video:

P.S. Also take note of this guy, Malcom Gladwell, who once more emphasizes that we have an ‘illusion of control’ contributing to unsound overconfidence in experts…a point made by Taleb a while ago.

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