Cameron brushes off hyperinflation warning
By Alex Stevenson
Black Swan author Nicholas Nassim Taleb’s warnings to David Cameron that Britain faces a high risk of hyperinflation met with a cool response at a discussion event this morning.
Speaking at the Royal Society of Arts on the relevance of Professor Taleb’s ideas to the economic crisis, the pair appeared to agree on the need to prioritise “pragmatism, not utopianism”.
But when it came to the risks posed by getting out of the recession they diverged dramatically.
“You’re facing scenarios which are going to be extreme,” Prof Taleb, a professor of risk engineering at New York University, warned.
He used the scenario of a plane forced to land on a very short island runway which must fly over a mountain but, by doing so, decreases the likelihood of being able to stop before running into the ocean.
“You can easily overshoot. The remedies may lead to hyperinflation.”
Mr Cameron rejected this outright, stating he “didn’t think there was a risk” of hyperinflation.
He was prepared to concede that the government, “with the level of indebtedness they have, runs the risk of inflation” and added: “The risk you shouldn’t run is you have difficulties funding your deficit.”
Prof Taleb’s thesis – that unexpected events happen and economies should be better prepared to cope with them – was approved of, in broad-brush terms, by the Tory leader.
And, while disagreeing over the extent to which Britain’s economy remains exposed to hyperinflation, Mr Cameron was able to find common ground over his attitude to returning regulation of the financial sector to the Bank of England.
Mr Cameron said: “When it comes to regulation, what matters is have you got good institutions and wise people with good experience in them.
“You want the Bank of England to be doing more of the regulating and have a specific role in calling time on debt levels.”
Prof Taleb agreed. “Give me a regulator, and I’ll show you a way to make money,” he said. “Regulation is not a panacea, it’s dangerous.”
