A couple of years ago an economist wrote a book titled “The Black Swan,” which is about unpredictable events. He argued the severity of the recession was a black swan. Some could say the revolutions and turmoil today in the Middle East are also examples of a black swan. N.C. State University economist Mike Walden explains.
“I think, really, the last decade and the changes in the economy in the last decade — particularly with the real estate boom, the real estate crash, the problems in the financial markets, the big tumble we’ve had in the stock market — I mean, all of those were very unpredictable. Most economists totally missed those changes.
“And the gentleman whose name is Taleb who wrote this book ‘The Black Swan’ has reminded us that despite all of our high-powered computer technology and economic theories, it is very hard to predict every single important event — particularly as it affects the economy. And you need to be prepared for the unpredictable.
“His recommendation is to be cautious — to be cautious in terms of your borrowing, make sure that you save enough and you build up your reserves. Be careful in taking on debt. And he is still arguing that. His most recent point is look at what’s happening in the Middle East. Obviously, it is adversely affecting stock markets. Who knows if it is going to cause another crash?
“But I think this is good advice — that when we are on a roll, that roll can come to an end. And it can come to an end because something that was never on our radar screen now pops up.”Category: Economic Perspective