Saturday, October 9, 2010

`Black Swan' Author Says Investors Should Sue Nobel for Crisis

Taleb is not perfect of course, none of us are, however he makes a great point. The Nobel committee in Sweden consistently has awarded the Prize to Keynesians though Milton Friedman (The King of the Monetarists) and F.A. Hayek (of the Austrian School) also won the award. The Swedes have rewarded those who supported the expansion of the money supply and the state consistently. But what are we to expect from Scandinavians?

Paul Krugman won the Nobel Prize just as the really dark clouds of the economic crisis started to gather. It was a huge nod to his thinking and the endorsement gave increased legitimacy to the New York Times columnist, who in turn influenced many of the policy makers (who tend to skew older) who still think that the Times is the source for good information.

Of course the real failure is not with the Nobel Prize Committee, which did indeed fail, but with our economic and political decision makers, and ourselves. We wanted to believe the old economic magic would work, desperately. Because if it didn't, and lets be honest, I think a lot of people in their heart of hearts knew that it was more likely to fail than succeed, we didn't know what to do. Our world had been based on 401k balances, and Social Security, and increased real estate values. These things defined us economically, and in some ways even as human beings.

So like a jilted lover we refused to believe that it was over and we clung to memories of what once was.

Krugman looked at us and said, "Don't worry, a policy of red roses and promises ought to bring Ms. Economy back, you'll see."

But the economy as we knew it is not coming back. She is long gone and living with a biker in Frensno.

We must now come to terms with this. But we if we look deep we will begin to realize that the old economy really was a pain in the ass anyway. With each passing year she wanted more. More taxes, more debt, more government. It never seemed to end. And she left just as the credit card ran out.

If we were smart we'd bid her good riddance, and move on to new possibilities.

As we transition into a 21st century economy we must start dealing with reality. We must embrace sound money.

What is sound money? Lets start with a gold standard, or a hybrid of gold/silver/and copper.

What does sound money do?

1. It ensures that the money in your bank account really is worth something.

2. It handcuffs the central banks which have a huge vested interest in expanding the paper money supply, even to the point of collapse (?) As the central banks are arguably the most powerful entities on the globe they will fight sound money at every turn, as they have.

3. And this is a very important point that I haven't heard much talk of. SOUND MONEY IS SUSTAINABLE MONEY.

What do I mean by sustainable money? Simply, by reigning in the ability of central banks to inflate infinitely, a greater premium will then be placed on those parts of the economy that are able to grow legitimately with better products etc. Waste will greatly be curtailed.

One of the reasons the Amazon rain forest is being plowed under (in addition to the lack of real property rights on the frontier) is because money supplied to logging and ranching interests is cheap. If gold backs a currency this money becomes much more expensive and so curtails those economic actions that simply only work with gobs of fiat money.

There is of course one, (I am sure there are many more than one, I'm just riffing here) obvious issue that presents itself.

If this cheap money is reined in does this not in turn create into a less robust economy? After all, many people are employed bulldozing trees in the Amazon Basin.

In a sense yes. There are obvious serious economic "costs" associated with sound money. To be sure such a transition would be difficult. It would make the state as we know it very heard to maintain in the short term. In the end though it would be worth it.

It is interesting to me that so many on the "left" are for the expansion of the state fueled by cheap paper money that is probably responsible for the death of more species than anything else.

Paper money, as we have employed it for the past 80+ years has destroyed people and places and animals and dreams. Gold on the other hand is a "natural" alternative to the monetary Frankenstein we now have, and it is one I think more people who are truly interested in sustainability must come to understand. I think it is a real key to how we move forward.

In the days ahead I am going to think more about the "gold as sustainable money issue."

Anyway, below is the article I referenced above. Enjoy.


Nassim Nicholas Taleb, author of “The Black Swan,” said investors who lost money in the financial crisis should sue the Swedish Central Bank for awarding the Nobel Prize to economists whose theories he said brought down the global economy.

“I want to make the Nobel accountable,” Taleb said today in an interview in London. “Citizens should sue if they lost their job or business owing to the breakdown in the financial system.”

Click here for the story.

If you liked this post please join us on Facebook. (See right margin.)

About Me

My photo
Nick Sorrentino is the Editor of The Liberty and Economics Review and CEO of a social media management company.