Sunday, October 10, 2010

Investors Should Sue the Nobel Committee

Bloomberg is reporting that Nassim Taleb, Black Swan author, thinks that investors should sue the Swedish Central Bank:
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.”

Taleb said that the Nobel Prize for Economics has conferred legitimacy on risk models that caused investors’ losses and taxpayer-funded bailouts. Sweden’s central bank will announce the winner of this year’s award on Oct. 11.
Taleb was interviewed by EconTalk's Russ Roberts this past Spring. One of the points that Taleb makes in that interview is that because failure is (in a sense) a scientific tool for exploring our world, governments should adopt policies that make failure "inexpensive". His view is that most governments today take steps that precipitate 2008-style banking failures. He's extending that argument to include big government enablers like the Swedish Central Bank.

I agree with Taleb, but I don't know about the lawsuit. I strongly feel that: too big to fail is two words too long. By that I mean that government has an obligation to pursue policies that prevent "too big" from happening and that organizations that are "too big" have to be paired back so that their failure does not have wide ranging economic impacts. I'll have more thoughts on the policy details of that after the election.


Ioannes Augustus said...

Whatever happened to the Nobel committee that had sense enough to give the prize to Hayek in 1974? Can we just ask to have them back?

dsm said...

@I. A. M.

You have to give them credit for the Peace prize this year. Liu Xiaobo is an excellent choice. Of course, they gave that one to Barrack Obama last year.

They really run hot or cold. I think Taleb makes a good case. The Nobel prize in Economics for Scholes and Merton added a patina of credibility and expertise to LTCM before it crashed and burned in a tax-payer funded bailout.