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.

Stimulus made the Economy Worse

Nassim Taleb, author of The Black Swan which was recently re-released with a new epilogue, believes that the stimulus has made the American economy worse:

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.”

I believe we are at a moment in time where continued Keynesian fiscal policies will not work. Our debt, both public and private, is much too large for the endless spending of Keynesianism. The day of reckoning has been postponed by government policies that consolidated the banking system into fewer, larger banks. Our government is fostering common mode failures in the financial sector under the absurd rubric of financial reform. We need a financial system—indeed, all sectors of civilization—that allow failure to have little impact on the rest of society. A few big banks won't do that. A lot of small banks will.

Put simply: "Too big to fail is two words too long."

Taleb was interviewed by EconTalk's Russ Roberts this past Spring. The hour and ten minute podcast is quite good!