The Black Swan has sold nearly 3 million copies worldwide and was described by The Times of London as one of the 12 most influential books since World War II. ... Then you retreated and wrote The Bed of Procrustes, a new book of aphorisms. Which is your favorite?
The one that represents my ideas the most is "A prophet is not someone with special visions, just someone blind to most of what others see." I have this idea I call "subtractive prophecy." To predict, you need to remove from the future what doesn't belong there because of fragility. And that makes prediction a completely different operation.
You argue that Ben Bernanke's points of reference [regarding the crisis] were wrong ...
Bernanke is completely fooled by the properties of the system. He didn't understand the risks of the system. He thought it was a great moderation when in fact we were sitting on dynamite. And of course this crisis took place and he still didn't figure out why.
Explain what he doesn't understand about the deficit.
The "Black Swan" problem comes from a high dose of unpredictability that people do not take into account. It makes the world less and less forecastable. Now, if the world is not easy to forecast, what do you do? You build reserves. You try to not have to rely on forecasts. If you have debt in a system, you need to be very good at forecasting.
The Office of Management and Budget—these people never got anything right. Look at their forecasts for 2008, made in 2004, '05, and '06. These people are issuing a GDP [and] unemployment forecast for the next 10 years. Based on that, they're going to borrow. The smallest mistake in the forecasting can turn the debt thing into something like the Weimar Republic. So my point is that an environment that is robust needs to have a low level of debt and a lot of redundancy, you see.
So what should they have done, as soon as they realized that there was too much risk in the system, that they had overleveraged?
When Obama took power, he appointed people who were part of the system that caused all this risk. It was the wrong message. They started doing the stimulus package. ... We should have done what David Cameron in the U.K. understood immediately—try to cut the cancer immediately.
Tell us what David Cameron has done.
He realized that the problem is not a problem of recession. The problem is vastly worse. It's the problem of risk, which can lead eventually to a much worse recession later, you see. The problem of all these people who are ... against austerity, in favor of spending money we don't have, is that they don't realize that you're fragilizing the system further with these packages of stimulus. Take an individual: If you're in debt, you borrow more?
If you're in debt, you spend less, is what you would argue.
There are two moral problems.
No. 1, the innocent are paying for the mistakes of those who did the wrong thing. And the second one is that by borrowing, by running this trillion-plus deficit, you are transferring the risk to future generations. It may work out. But as the Romans held, a child should not be responsible for the sins of his father.
And if we delay dealing with the deficit ...
It's going to get worse.
You're reflecting the sentiment of German voters who object to the bailout of Greece. They say, "We were saving. We were living within our means, and the Greek government was living way beyond its means. And now we're being called on to rescue them."
Well, the situation is a lot worse here than it was in Greece. Europe has less debt per GDP overall than the U.S. They're more robust. ... They have Germany, they had the International Monetary Fund, whereas Obama doesn't have anyone. And cutting a hundred billion here and there is nothing. It's peanuts. We have more than a trillion to worry about.
O.K. I'm asking you who pays the price. I'm asking you to make the hard decisions. Where would you make the cuts?
In every aspect of the federal budget. And then you also have to raise taxes. I'm sorry, we have to raise taxes.
Otherwise, if we don't do this, the consequences are ...
Monstrous, monstrous. The risk, the fragility is increasing geometrically.