Obama Stimulus Made Economic Crisis Worse, `Black Swan' Author Taleb Says

While they were telling us that the stimulus kept the economy from going "over the cliff" they may have driven the economy over the cliff deliberately.

U.S. President Barack Obama and his administration weakened the country’s economy by seeking to foster growth instead of paying down the federal debt, said Nassim Nicholas Taleb, author of “The Black Swan.”

“Obama did exactly the opposite of what should have been done,” Taleb said yesterday in Montreal in a speech as part of Canada’s Salon Speakers series. “He surrounded himself with people who exacerbated the problem. You have a person who has cancer and instead of removing the cancer, you give him tranquilizers. When you give tranquilizers to a cancer patient, they feel better but the cancer gets worse.”

Today, Taleb said, “total debt is higher than it was in 2008 and unemployment is worse.”

He blames the childlike faith in the ability to forecast the future:

Governments globally need to cut debt and avoid bailing out struggling companies because that’s the only way they can shield their economies from the negative consequences of erroneous budget forecasts, Taleb said.

...

“Today there is a dependency on people who have never been able to forecast anything,” Taleb said. “What kind of system is insulated from forecasting errors? A system where debts are low and companies are allowed to die young when they are fragile. Companies always end up dying one day anyway.”

The Obama administration has kept companies who should have died on life support by, in effect, bleeding the healthy sectors of the economy into economic anemia.

The reason that free economies perform better than socialist ones is that in free economies, failing business are allowed to die, making room for new, better businesses.  In a socialist economy, central planners artificially prop up failing businesses and give stimulus to businesses that are either well connected politically or ones that are compatible with their political ideologies.  These latter "hothouse plants" need constant support or they will fail in a free economy, leading to eternal subsidies and an anemic economy.