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.
