Nassim Taleb photo

Nassim Taleb, author of “The Black Swan,” talks with CNBC’s John Carney to discuss what he is seeing now. He also discusses his upcoming book, Antifragile: Things That Gain from Disorder (must see related post, Reformed Broker: Retraction re: Antifragile Parody)

H/T Value Investing World


kayla, thank you. nassim taleb spotted the financial crisis of 2008 before anybody else did. he is the author of the black swan, it was a groundbreaking look at highly improbable events with massive repercussions. his new book is called antifragile — things that gain from disorder. it is nice to have you back with us. pleasure to see you. thanks. very honored. tell me what antifragile is. what does it mean? all right. when you ask people what’s the opposite of fragile, they’re going to tell you solid, robust, resilient, adaptable, all that stuff. it’s not true. antifragile is something that gains from disorder, not something that’s safe. something that requires disorder, requires volatility, requires vulnerability, requires some kind of stress — up to a point, of course. can you give us an example of what sort of things are fraent fragile. i started my life as an option trader. for a long time i thought of nothing except in terms of he’s short volatility, long volatility. if you had an option portfolio thined from turmoil, ibts’s hurt by turmoil. i realize there are applications to real life. there’s nothing organic that t require some amount of disorder. your bones, they want stressors. if y don’t send stress to your bones, they’re going to become brittle. the same as people go to the health club to stress their muscles. the same thing applies to the economy. if the restaurant business had no stressors, you would be eating now soviet style cafeteria food. right? but you have basically three categories that you can put things into. some things are fragile. some things are robust meaning they can withstand shock. and then the antifragile is what can really gain from volatility and stress. exactly. and the economy — the problem is people misunderstand the economy. the mistake the economy is something that used to be like the brooklyn bridge, strong and robust. you have to gain from errors. that’s not how we got here. otherwise you’d have something like soviet russia, built from top-down. we took some of the key stressors from the markets that are out there. and there are a number of them these days, certainly. we’d like you to go through and tell us whether they’re fragile, robust or antifragile. start with the fiscal cliff because it is what everybody on wall street is watching. is it fragile, antifragile or robust. for me it is a good thing because the economy requires once in a while to be shaken and people to be scared. otherwise we got troue. soke equivalent of forest that hasn’t had forest fire in a while. you need once in a while to jolt the market so people realize that there is something wrong and we have to do something about it. and we need these fiscal cliffs and similar situation to shake politicians. because they have no skin in the game according to you. that is a big problem. there’s some category of people who have the up side and no downside. and effectively, they have — the downside is borne by us april 15, tax day. we pay the bill. yes, that is a stressor. we have a downside. like long volatility, we benefit from this order and the rest of us are antifragile. you want to eliminate that symmetry in society. at no time have we had that many people in nkind with is no skin in the game. politicians benefit from disorder, they ultimately save the day. they want society to be fragile so they can come in, save the day. we have that transfer fragility from the bankers to us from these people and my whole idea — it actually became obsessive idea for me — is how do you re-establish with very simple rules some symmetry in society and eliminate — because wee so much systemic risk coming from the fact that some people have nothing but up side. europe would be speaking of systemic risk. think of the best country in the world in my opinion from standpoint of fragity. perhaps the most-antifragile one is switzerland. the mayor is responsible and ashamed when he makes a mistake. unlike someone in washington. where the country is appropriate the most successfully one in mankind. is europe learning from switzerland? the fragility of e — — is past. in the process of breaking. and gradual and slow transformation into — if you want europe to survive, it is going to move to something closer to switzerland. how about eequipped and the middle east? that’s another big stressor. egypt is a prime case of what i — let me invent a word here — gran greenspanization of something. egypt, the policy of the western world was egypt by propping up mubarak to have stability, quote, unquote, was account of greenspan stability we have, that kind of pseudo moderation. things were brewing under the surface and now we pay the price after 40 years of sadat and the other fellow. so now we have to pay the price. what’s going to happen? nobody knows. even the players don’t know. we still don’t know. i don’t think it is going — we’re going to move to democracy overnight. we’re going to have turmoil. i don’t know what’s going to happen but that’s identical to the trying to eliminate overstabilization of something makes it weaker. that’s what we have in egypt. the key message is you need volatility, you need stressors in the system, and you need companies and you need markets who can survive those stressors and thrive by them. exactly. we need to encourage people to take certain classes of risk. we need more small fluctuation and fewer big crises. in fact we have the exact opposite. things are smooth but with big — very quickly. you said four rules. can you give them quick to us? remember the first one is the economy, don’t mistake the economy — the economy is more like a cat than a washing machine. the second rule is small is beautiful because it is less fragile. decentralize that small. third rule is skin in a game to make sure that nobody’s antifragile at the expense of others. and a fourth rule — i mean i have like six or seven rules. let me pick one at random — a good rule is that — by antifragile. no. very important rule is to make sure that bailouts help individuals, not companies. in fact we have the exact opposite. we’re going to have social