[Note: I italicize phrases I borrow from the chapter, and link to phrases I borrow from other chapters to help tie chapters together. While making it more tedious to read, the Tao Te Ching is best pondered in the context of the whole.]

I was a bit stumped by parts of this chapter's literal Chinese, so I went to see what someone else at Wengu zhixin had to say. Initially I really took to Waley's translation (see below) . It promised a solution to 'the problem'. I woke up from this fantasy when I noticed much of what he says, solution-wise, is absent from the original Chinese. D.C. Lau also adds more than is there in the original, although the ‘by being alive to difficulty that one can avoid it ’ hits the nail on the head nonetheless.

I've find that pondering away in confusion over the original can eventually bring deeper insight than what, at first sight, seems beautiful and persuasive. So it is with most every thing in life, is it not? The nitty gritty of this chapter to me is humanity's mental defect: we believe to be true what we think is true. There is simply no basis for this trust we put into the mind's goings on (including all this naturally). I think of thoughts as logs in a river. I use them, hoping from one to another, as I move to the 'other side' (death?). I quickly lose balance if I stay or hold onto any log too long. That, and knowing that my thoughts are simply symptoms and reflections of deeper indistinct and shadowy realms helps me not know anything in the end. I guess I'm training myself to be an expert at Nothing. How odd is that?

Take your time, scratch your head and who knows…
Realize not know superior, not know this realization is a defect.
Man alone has this defect, this is because to him its no defect.
Sacred person is not defective, because of such defect.
Man alone has this defect, this is because to him its no defect.

This literal bare bones translation should make the one above feel more attractive:
know (realize; inform; knowledge) no (not) know (realize; inform; knowledge) upper (up; higher; superior),
no (not) know (realize; inform; knowledge) know (realize; inform; knowledge) disease (fault; defect).
husband (man) only (alone, yes) disease (fault; defect) disease (fault; defect),
correct (yes, this, that) use (take, because of, as well as) no (not) disease (fault; defect).
sage (sacred)human being (man, person, adult) no (not) disease (fault; defect),
use (take, because of, as well as) his (her; its; that; such) disease (fault; defect).
husband (man) only (alone, yes) disease (fault; defect) no (not) disease (fault; defect),
correct (yes, this, that) use (take, because of, as well as) no (not) disease (fault; defect).

Waley's translation:
To know when one does not know is best.
To think one knows when one does not know is a dire disease.
Only he who recognizes this disease as a disease
Can cure himself of the disease.
The Sage's way of curing disease
Also consists in making people recognize their diseases as diseases and thus ceasing to be diseased. (Waley)