Belmont Club

The White Swan

Nouriel Roubini argues that we usually know what is bad for us. It’s just that we can’t get ourselves to stop. The financial crisis of 2008 was a “white swan” — an event that honked loudly as it swam forward in the stream of time. Now the next crisis is looming, he claims: one in which the world will fall into chaos if the United States implodes. And it will implode due to the growing mountain of government debt.

Roubini characterizes these financial crises as a “white swan” event. He emphasizes their regularity in his recent book Crisis Economics. Roubini says the pattern of crises is always the same: initially there is an economic boom, which drives up asset prices, leading to an excessive build-up of debt and leverage, which eventually leads to a downturn and then a market crash and bust. …

Looking ahead, Roubini worries about the balance of power in a world in which the U.S. is no longer a superpower. Global governance has shifted to the G-20 from the G-7, which was really a G-1, with the United States playing the role of the global hegemon and provider of global public goods. As America’s power declines, there is no country stepping in to be the world’s leader. Instead, emerging powers like China, Brazil, and India are all free-riding on America’s contributions to international order. Roubini fears that the world will go from a G-20 to a “G-0″, where there will be political and economic disorder.

The problem with Roubini’s warnings is that they are mentally blocked out by people who think the White Swan cannot exist. James Taranto says the most astounding thing about the Left’s inability to believe that the Obamacare individual mandate could be challenged amounted to the idea that anyone who thought so was stupid. He calls it the Stupidity Defense. No one could see it coming even if Obama the candidate could.

At a debate in February 2008, the junior senator from Illinois said:

Sen. Clinton believes the only way to achieve universal health care is to force everybody to purchase it. And my belief is, the reason that people don’t have it is not because they don’t want it but because they can’t afford it.

… Obama no doubt sensed that the idea of compulsory purchase of insurance would rub voters the wrong way.


But he forgot it; forgot it the moment his logical train of thought got in the way of his wish. Taranto argues this refusal to treat any intrusion into the fantasy scenario is the single biggest blind spot of American liberalism today. Things are relabeled to make them invisible. Printing money is called quantitative easing. Burying yourself in debt is called the return of the New Deal. But Roubini says that when the hour of disaster comes, the surprising thing (as Taranto noted) will be that the White Swan had been in plain view all along.

Roubini argues that the United States is at serious risk of heading back into a recession, and unlike other talking heads, he puts a number on his prediction, saying there’s a 40 percent chance of the United States hitting the dreaded “double dip.” Why? He thinks the root causes of the current malaise have only been covered over and that unhealthy levels of debt are once again piling up around the world — though this time on government accounting ledgers. It’s only a matter of time, he says, until we start seeing national bankruptcies — perhaps even a cascade of them across Europe that sparks the dissolution of the euro. If Roubini has one message, it’s that crises aren’t unforeseeable “black swan” events, but “white swans” — the culmination of long trends that are perfectly intelligible to anyone who takes the time to examine the data. We may not like Dr. Doom’s advice, but we can’t say he didn’t warn us.

Not that it will do any good.


Link to Wretchard’s novel “No Way In” print edition
Link to Wretchard’s novel “No Way In” Kindle Edition”