Economics

Nassim Taleb: ARRA Stimulus Leads to Total Canadian Domination

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The Canadian reconquest was born in Edmonton.

Too bad Nassim Nicholas Taleb delivered this speech in French to an audience in Canada. Americans should hear, in American, the Black Swan author's thesis that the Obama brain trust has made the recession worse. Playing to his audience, Taleb says the U.S. economy is so sick that Canada has become a better bet for international investors.

He looks like an off-duty Orthodox priest, but listen to him anyway.

Taleb is a critic of the policy expert class, and he accuses the Nobel Prize bureaucracy of rewarding economists who misunderestimate risk. His book's title refers to a phenomenon in which, even in their worst-case projections, Natalie Portman and Mila Kunis failed to predict they would be in a ballet movie so arty they'd have to kiss to get people to buy tickets.

The Credit Unwind—and the resulting implosion of experts that should be starting, any, day, now—has provided Taleb indefinite dining out privileges at the handful of North American restaurants that are still in business. But apparently he insists on paying. Here are a few gems from Taleb's talk at the Salon Speakers series in Montreal, courtesy of Bloomberg's Frederic Tomesco

Obama did exactly the opposite of what should have been done… He surrounded himself with people who exacerbated the problem. You have a person who has cancer and instead of removing the cancer, you give him tranquilizers. When you give tranquilizers to a cancer patient, they feel better but the cancer gets worse… [T]otal debt is higher than it was in 2008 and unemployment is worse.

Today there is a dependency on people who have never been able to forecast anything. What kind of system is insulated from forecasting errors? A system where debts are low and companies are allowed to die young when they are fragile. Companies always end up dying one day anyway.

The first thing to do if you want to solve the mortgage problem in the U.S. is to stop making these interest payments deductible. Has someone dared to talk about this in Washington? No, because the U.S. homebuilders' lobby is hyperactive and doesn't want people to talk about this.

NEXT: The Amazing Zandi

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  1. As if these truths aren’t bad enough, I made the mistake of reading the NY Times review of books today and discovered Robert Reich has a new book! Has this man ever been right about anything? Why don’t people who are wrong about history, about their predictions of the future, about economics, just slink away? Why are we still listening to them??

    1. I blame NPR.

  2. Misunderestimate? I think that word’s been refudiated.

    1. Of course, I’m using it, as I do everything, “ironically,” but this is not the first time I’ve said to myself, “Self, misunderestimate is actually a useful word.”

      1. Every time you rationalize your mistakes, Tim, it makes us pity you more. You don’t want that, do you?

        1. A man of genius makes no mistakes. His errors are volitional and the portajohns of discovery.

          1. portajohns

            I’m sure Joyce would be proud.

            1. Dr. Joyce Brothers?

              1. James Joyce, you bloated troglodyte!

                I keed, I keed, you no bloated.

                1. Mr. & Mrs. Troglodyte are very hurt, and respectfully request that you retract the reference to what is arguably a thyroid condition.

                    1. Can you not see the hurt in their eyes?

          2. Yes, but you’re not a man of genius. :-p

      2. It’s redundant, as the “under” prefix of the accepted word implies the “mis” meaning.

        1. True. I prefer “misestimate”.

          1. That would be acceptable, but it’s inelegant if you know the direction of the error.

            1. As if I’m an authority on anything but my on aesthetic tastes.

        2. He should undertake to avoid this mistake.

    2. Its a perfectly cromulent word.

      1. Its a perfectly cromulent word.

        It’s an imperfectly cromulent word.

        Which is to say: it’s a cromulently cromulent word.

        And not to put too fine of a point on it, but for the sake of thoroughness: it’s a cromulently cromulent cromulence.

        Please try to keep these matters straight.

        1. Oh, so you’re in favor of DADT?

          1. oh! that makes perfect sense!

          2. Oh, so you’re in favor of DADT?

            DADT? The deadly chemical that was abused by greedy agribusinessmen which killed off all the little birdies and silenced our springs?

            No, Sir, I am not in favor of that.

    3. Fuck you all you word Nazis!!!

      If you want a “controlled” language then move to France.

  3. The only thing Rick Moranis did that was ever funny.

    1. You are not the key master

    2. I thought his role in Ghostbusters was pretty good.

    3. I had respect for Darth Helmet.

    4. Somebody missed Little Shop of Horrors (or lacked the sophistication to get it).

  4. the U.S. homebuilders’ lobby is hyperactive

    Isn’t mandatory ritalin part of Obamacare? For elected officials and lobbyists at least? That was the one provision i approved of, dammit!

  5. Anyone found the entire speech?

  6. Soon we’ll all be living in igloos and eating peameal bacon…

    1. Mmmmm. Bacon . . . .

  7. The first thing you need to do if you want to solve the mortgage problem, along with the other problems, is to radically reduce government spending.

    I can find no evidence that giving government an excuse to take more of your money produces anything other than more government waste.

    1. Cap [federal] spending at 17% of GDP and I will freakin shut up about [federal] spending for a decade. Its amazing how many problems that will solve even if it isnt even close to constitutional levels of spending. Much less libertarian levels.

    2. The solution is to calculate how much revenue per year is lost to mortgage interest deductions, then reduce taxation for all taxpayers by that level. So mortgage debtors would be paying more than they are now, but everybody else would be paying less, and you’d have eliminated a dangerous piece of social engineering in a way that is “revenue neutral.”

      Will never happen on this planet, but maybe UN Alien Greeter Mazlan Othman will find us a civilization with a more forward-looking real estate policy.

      1. Or, go back to original way, and allow all interest to be deducted to avoid “double taxation”. Not even remotely revenue neutral.

        1. Then why shouldn’t I be able to deduct a pair of shoes? Foot Locker is getting taxed on my payment, and in return providing me a good just like present use of money is a good.

          1. In 1913, you could if the shoes were a business expense. So if they are your journalism shoes, go right ahead.

            Notice I put double taxation in quotes up above. Im fully aware of the arguments.

            This whole argument is why income taxation is stupid to begin within. I give labor to a company but have to pay tax on the money I receive. Why dont I get to deduct the value of my labor? The answer is, because it involves goods or labor, while somehow “time value of money” is confusing.

            But, regardless, treating some interest differently than other interest is stupid.

      2. Or, even more sensible, would be to eliminate all taxes and implement one simpel tax, national sales or flat. Surely Reason is including that in their REform edition.

        How fucking convenient for pols to have people jabbering over bullshit social engineering tax policy.

        1. simple damn it

        2. Single Land Tax is the only one that makes sense. No deadweight loss.

          1. Agreed, with the added benefit that it would not regressively burden the poor unlike a sales tax.

            1. Bullshit. Any tax structure that replaces the abhorent income tax will obviously have to not burden the poor. I believe the prebate addresses that with a national sales tax.

              One would hope with a simplified tax and some much needed spending reductions, the economy would flourish enough to significantly reduce “the poor,” which is about as subjective as “the rich.”

          2. How much would I have to pay for my four acres where I live? I also have my eye on 80 not very good for farming acres to run around on and shoot stuff, how much for that?

            1. Ive seen estimates that the max it could be would be 6% of unimproved value. So how is is the 4 acres you live on worth? (Ignore the house). How much is 80 acres of shootin land worth?

              1. Call the 80 $100,000 for the sake of my math skills. $500/mo is a bit steep. What if the land was terraced and made better for farming. If I sold it for $125,000 would the new owner pay at the original unimproved price or the purchase price. What if I sold the land to my friend for $1,000. It seems to me that someone from the filthy gubment would have to assess the value of property like they do now for my county taxes.(Which is more than I could sell it for BTW)

                1. Its not perfect. Yes there would still be an assesment. If the land was terraced, that would be your improvements and hence not part of its unimproved value. Even 100 generations from now.

                  $500 a month is a bit steep, but one of two things happens:

                  You use the land such that it generates $500 per month or the value of the land drops to the point that you can afford the tax. It makes land speculation rare.

                  The Georgist idea was that you gain nothing from “possessing” land but that 100% of your productivity belongs to you. So no income or sales or property (improved) taxes. But the full “rent” (economics) is what you pay for the state granting you a deed.

                  And while $500 a month is steep, how much you paying in income tax and FICA each month? Cause you arent paying them anymore.

                  Of course, its a utopian dream in that I dont know how we get from here to there. First we would have to dramatically cut spending before it was even possible.

                  1. Thanks. I’d take the land tax over what we have now but the fair tax may be more posible.

                    1. Fair tax has deadweight loss. Im not sure being more possible makes up for that.

          3. Single Land Tax is the only one that makes sense.

            No, the only tax that makes sense is Pay For What You Get. You know, how all other service providers are paid.

            1. It’s almost as if you’ve never heard of the free rider problem.

              And “pay for what you get” is not how many service providers in the private sector are paid, anyway. Health insurance, auto insurance, private security systems, etc.

              I suppose you could say you’re paying for the ability to use them in case you need them, but that’s true of the government too.

              1. It’s almost as if Tulpa thinks there is a free rider problem with people paying for services and goods received, and nobody getting any shit for “free” by using politicians to rob others — you know, using markets instead of politics to allocate scarce resources with alternate uses.

                “Pay for what you get” is exactly what happens when I buy an insurance policy or hire a private security firm. I miss the premium payment, they cancel coverage.

                1. nobody getting any shit for “free” by using politicians to rob others — you know, using markets instead of politics to allocate scarce resources with alternate uses.

                  Red herring. The original comment was about taxes being unnecessary, not about rent-seeking.

                  I miss the premium payment, they cancel coverage.

                  Let me know when you figure out a way for government to cancel defending you against invasion if you don’t want to pay for it.

              2. prole pretty much said everything I would say to you, Tulpa.

            2. No, the only tax that makes sense is Pay For What You Get.

              You idiot, there’s no way to place a value on the priceless government jobs and earmark programs.

              How is Congress supposed to pass things that they don’t read or know about if it’s expected to actually deliver a measurable value?

              I bet you’re one of those who think there should be some sort of connection between funding and performance in the education system!

              Are you insane? There would be nothing left!

      3. The solution is to calculate how much revenue per year is lost to mortgage interest deductions

        I’m intrigued by your idea of ‘lost revenue’ (does it star Ray Milland?)

        You know, Tim, I consider the money sitting in your bank account as ‘lost revenue’ for me. There just has to be some way to solve this intractable problem!

        One of the ways of solving it is to completely eliminate the white flag semantics that assume that all funds are the property of the government.

      4. mortgage interest deductions

        Is no different then any other investment expense. Stock trades who buy on margin take the same tax deduction. the same goes for people who take loans for any other business investment.

        Bloomberg’s Frederic Tomesco is simply a wall street hack who wants to make investments out side of where he makes his bread and butter harder for people to invest in.

        In an inflationary market it is no surprise he is going after real estate. Traditionally only gold stocks and real estate are good hedges against it. If he knocks real estate down he will only get more people to invest in what he is selling.

        Anyway Tim you are correct. We should cut taxes.

        1. Bloomberg’s Frederic Tomesco is simply a wall street hack who wants to make investments out side of where he makes his bread and butter harder for people to invest in.

          Correction:

          Nassim Nicholas Taleb is simply a wall street hack who wants to make investments out side of where he makes his bread and butter harder for people to invest in.

          1. NN Taleb is retired from wall street, and makes his money from really great books like “The Black Swans”.

            He’s wrong about eliminating the mortgage interest deduction without a corresponding cut in other taxes, since otherwise that is just a massive tax increase.

            1. NN Taleb is retired from wall street

              Dirty old tricks die hard.

              since otherwise that is just a massive tax increase.

              A wall street Guru calling for a massive tax increase out side of his industry to fix a nonexistent problem?

              Color me unsurprised.

  8. How many years have the republicans went along with the left to get along? That’s the problem, for so long the right has not been any different. Bush was a big spending liberal, Mrs Bush has come out and admitted to the same social beliefs as the democrats, so when there’s no opposition for all these years we get Obama. Well that goes both ways, now we get the TParty, enough is enough and the party of hey spend, spend, spend is over, it was over the minute the people said stop last year. It’s already happened, the rest of the country hasn’t realized it yet, but they will. It may take awhile but it will change and the change will be exactly what the people say it will be, period. It’s funny it’s already done but they just won’t or can’t deal with what has already happened. They still think they can change it but they can’t, the numbers are pretty basic and that just is reality. Another thing they don’t get is Palin will be our new President. Palin/Bolton 2012 grrrr 🙂 !

    1. Your blind faith in idiots intrigues me.

    2. Vice President Bolton? I’m not sure which Bolton would be worse.

      1. I think there’s supposed to be a Michael Bolton joke in there somewhere. I drank too much while watching the Browns lose to have the luxury of making sense, though.

        1. Strangely enough, I got it without the explanation.

    3. Another thing they don’t get is Palin will be our new President. Palin/Bolton 2012 grrrr 🙂 !

      Jann,

      Are you hot? I ask because i have only dated crazy left wing women…i always wondered what a crazy right wing woman would be like to date.

      Anyway i like your T-party cred but by putting your faith in some sort of revolution i think you are setting yourself up for disappointment. At best all they will do is knee cap Obamacare and cut stimulus.

      1. I’m a hot 18 yo Alaskan ready to bang on a bearskin rug in front of the fireplace in your hunting trophy room, big boy. No condoms, I don’t believe in contraception.

        1. I’m a hot 18 yo Alaskan ready to bang on a bearskin rug in front of the fireplace in your hunting trophy room, big boy. No condoms, I don’t believe in contraception.

          lol

          touche

          1. wait..

            god damnit heller.

            1. Welcome to the Internet, Corning. If your not on a porn site, she ain’t hot.

              1. Or necessarily a woman.

  9. Taleb gets one thing really, really wrong. Mortgage Interest has been deductible since the first income tax in 1913, has nothing to do with homebuilder’s lobby.

    About the only thing the lobby did was prevent it from going away when the rest of the interest deduction went away. ALL interest was deductible originally. Because interest payments were income by the recipient and taxed there.

    1. Actually it’s a subsidy for the banking industry, as deductible mortgage interest leads to higher house prices, and thus larger mortgage loans.

  10. Off topic.

    Nobody picked up on the bailout of the wholesale credit unions on Friday, huh? I guess $50 billion isn’t worth getting out of bed for, anymore.

    http://online.wsj.com/article/…..bs=article

    1. I guess $50 billion isn’t worth getting out of bed for, anymore.

      When $787 billion is “not spending enough”, can you blame us?

  11. Speaking of debts:

    Paulie Krugnuts: We’re Going To Have To Default On Our Debt One Way Or Another
    In the end, I’d argue, what must happen is an effective default on a significant part of debt, one way or another. The default could be implicit, via a period of moderate inflation that reduces the real burden of debt; that’s how World War II cured the depression. Or, if not, we could see a gradual, painful process of individual defaults and bankruptcies, which ends up reducing overall debt.

    1. Gee, and here just a little while ago he was arguing that massive debts weren’t a big deal as long as GDP grew as well. Maybe Paulie’s finally coming to the realization that the party’s over.

  12. And just because I can and because it’s more Canadiana, and because I think it’s part of the drinking game, let me note that the picture of Bob and Doug is also a Rush sighting, as that still is from the short film Thomas and Moranis did to introduce the song “The Larger Bowl” on the 2007-08 Snakes & Arrows tour.

    You may now resume your discussion of whether “misunderestimate” was worthy of Cavanaugh.

  13. The first thing to do if you want to solve the mortgage problem in the U.S. is to stop making these interest payments deductible. Has someone dared to talk about this in Washington? No, because the U.S. homebuilders’ lobby is hyperactive and doesn’t want people to talk about this.

    *sigh* Besides getting the government out of the loan guarantee business giveaway, I’ve been advocating it for quite some time.

    You can even phase it in over a decade to give people time to adjust, but kill that sucker.

    It is no fun being Cassandra.

    1. More like Jane Craig.

      “It must be nice to always believe you know better, to always think you’re the smartest person in the room.”

      “No. It’s awful.”

      1. With an IQ of 160+ . . . don’t I know it!

    2. Good luck with that. I stopped bringing the idea up with friends and relatives a decade ago, because few things I could say were more likely to lead to a heated argument.

    3. Killing it without reducing other taxes means a massive tax increase to feed Congress’ spending spree. You really for that?

  14. The thing that has always concerned me most about government trying to encourage home ownership is how much capital and labor is wasted on lawn maintenance and the like. Plus people could be more productive it they were more social; not riding their mowers.

    1. The thing that has always concerned me most about government trying to encourage home ownership is how much capital and labor is wasted on lawn maintenance and the like.

      IIRC I read years ago that the total area devoted to lawns in this country is about equivalent in size to the entire state of Pennsylvania, and that $30 billion is spent wasted annually on maintaining same.

      Plus people could be more productive it they were more social; not riding their mowers.

      What if somebody started selling tandem mowers? We could have the romance of the rototillers:

      Oh, baby, the swaths we cut together are so … squiggly!

  15. The first thing to do if you want to solve the mortgage problem in the U.S. is to stop making these interest payments deductible.

    What a bunch of total bullshit.

    Banks and other loaners pay tax on that interest. Being able to write it off is a business expense no different then any other investment or expense. Why is interest on real property so different?

    Furthermore when the buyer sells her home she will also have to pay capital gains tax.

    U.S. homebuilders’ lobby is hyperactive and doesn’t want people to talk about this.

    Ummm yeah cuz anyone who opposes raising taxes is hyperactive.

    Anyway this is the same bullshit you always hear from Wall Street Hacks when ever the market does not do what they want it to do. “Oh look people are investing outside of the stock market. We had betters stop that!!! Double tax em for it. But be sure to keep all the tax breaks people get when they invest in the market.”

    Frederic Tomesco is a fucking wall street hack. 10$ says he supported TARP.

    1. Frederic Tomesco is a fucking wall street hack. 10$ says he supported TARP.

      Correction:

      Nassim Nicholas Taleb is a fucking wall street hack. 10$ says he supported TARP.

      1. How can I collect?

        Derek

        1. Joshua,

          You can pay me via paypal. I’ll send ya the address soon.

  16. Maybe Paulie’s finally coming to the realization that the party’s over.

    Paulie don’t realize.

    Whoever tells him what the official line is this week may have advised him that the future Krugnuts will need a hedge quote re: default, dated circa now, in order to not wind up all refudiated.

    That’s assuming Paulie has any idea what he’s writing when he writes. Whenever I assume that, I have a vague intuition that I’m a dumbass.

    1. I feel your pain.

  17. Sorry for the threadjack, but has anyone else seen
    this?

    “Online Infringement” Bill…

    1. Which governments deny their citizens access to parts of the Internet? For now, it is mostly totalitarian, profoundly anti-democratic regimes

      Many in Congress can only hope.

  18. Taleb enumerates ten principles for building systems that are robust to Black Swan Events:[10]

    1. What is fragile should break early while it is still small. Nothing should ever become Too Big to Fail.

    Huh?

    For someone naming his book Black Swan and using the internet and the PC as examples of Black Swan events he sure does not get it.

    Were type writers to big? Should they not have failed before the whole county had them? Maybe they were to fragile? Or perhaps he is selling the idea that computers should never have been invented and we should have ordered our economy so they never got invented.

    I think the problem here is this guy says one or two things we might like but then throws in a whole bunch of bullshit in along with it.

    It reminds me of Thomas Friedman when he wrote “The Lexus and the Olive Tree” then after became an apologist for totalitarianism.

    Taleb works in the same way…yes to big to fail sucks and we all hate it…but in no way does it justify the previous idiotic sentence:

    What is fragile should break early while it is still small.

    There are far to many examplues of industries that at their time made perfect sense and became huge because of the utility they provided but then fell because of innovations.

    The problem is not that things get to big…the problem is that government tries to prevent their fall when their time has come.

    1. He said “what is fragile” should fail.

      Not sure how typewriters fit into this.

      He is saying if an industry is built on bad debt or something like that it should fail while it is small. Which it would if there was not some goofy policy supporting it.

      As far as deductible interest, we have had it for a long time and it never caused real estate bubbles until recently. If people still have to put 20% down, the interest payment deduction will not, by itself, be a huge problem.

      1. He is saying if an industry is built on bad debt or something

        Or something?

        No what he is saying is bullshit jingoism that just happens to be jingoism we like to hear.

        If you do not believe me then read the rest of the list:

        # No socialisation of losses and privatisation of gains.
        # People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.
        # Do not let someone making an “incentive” bonus manage a nuclear plant ? or your financial risks.
        # Counter-balance complexity with simplicity.
        # Do not give children sticks of dynamite, even if they come with a warning.
        # Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.
        # Do not give an addict more drugs if he has withdrawal pains.
        # Citizens should not depend on financial assets or fallible “expert” advice for their retirement.
        # Make an omelette with the broken eggs.

        As far as deductible interest, we have had it for a long time and it never caused real estate bubbles until recently

        Deductible interest did not cause the real estate bubble. Local land use policies that artificially constrained supply caused the real estate bubble.

        1. # Citizens should not depend on financial assets or fallible “expert” advice for their retirement.

          If not financial assets, then what else are we supposed to use?

    2. You totally miss the point of what he is saying.

      It isn’t that computers are the problem. The fact that the world is connected like never before has effects. The failure modes have increased substantially. Any interconnection is a potential failure point. The capacity to understand or predict how failures would happen and when are now beyond our capabilities.

      Another danger is instrumentation opacity. I’ve seen situations where in reality things were going very wrong, but the instrumentation didn’t show it. The economic models, risk modelling and the like that the current financial system is based upon are flawed and dangerous. AAA ratings for subprime mortgages. Mustof been a hell of a model.

      In that case, the solution is redundancy. It is not an industry that becomes irrelevant. It is current processes that fall apart in ways that are unprecedented, without borders and without bottoms. Power outages, computer worms and virus’, flash crashes in the stock market, riots and unrest in remote parts of the world because some inconsequential weirdo decides to burn Korans.

      Debt is a form of interconnectivity that has the potential of bringing down both sides of the deal. Small amounts are less dangerous, but large leverage ratios and high indebtedness removes options when options are needed.

      All that is required for default is being late to pay.

      Any policy that encourages debt encourages fragility.

      Derek

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  21. Citizens should not depend on financial assets or fallible “expert” advice for their retirement.

    If not financial assets, then what are we supposed to use?

  22. Citizens should not depend on financial assets or fallible “expert” advice for their retirement.

    If not financial assets, then what are supposed to use?

    1. 30 year US treasury bonds are paying 3.75%. In 30 years the US Treasury will be paying the equivalent to 100% of current budget expenditures on interest alone.

      Sounds like a wonderful deal.

      Nassim is saying that we are seriously fu**ed. Those wonderful pieces of paper are surely a safe bet.

      Derek

  23. I’m confused: Taleb correctly believes that it is important to get rid of the mortgage deduction. But why in the hell is he blaming this deduction on the “administration”, when it is in fact the no-tax-increases-ever-anyhow-anyway Tea Baggers that would kill such an idea before it even had time to be stillborn that are the problem?

    1. Yes, Chad, it’s the Tea Party’s fault. Damn that Tea Party-controlled Congress and White House!!!

  24. Inflationists, deflationists, monetarists, goldbugs, Keynesians, Friedmanites, Austrians, freshwaterists, saltwaterists, Grid Epsilon Irregulars and others are urged to listen in.

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