Sunday, November 14, 2010

Taleb on the Fed

Black Swan gold:

You may print, print, print and no effect. Just like a ketchup bottle you bang on with nothing coming out. And what can happen, is you keep banging on the ketchup bottle and it all comes out. This is the problem with non-linearity. The economics establishment isn't understanding that. Why are we listening to Bernanke when he didn't see the risks before? (1:20)


  1. I think changing their mandate makes sense...full employment is not something you engineer through monetary settings. Full employment should be a constant goal of any economy.

    Price stanbility should be its function, but not assest price stability - only the prices of consumer and everday items.

    If an asset or commodity increases in price during a low interest rate invironment, it is lunacy for the central bank that allowed rates to remain so low - to then come out and undertake QE to ensure the inflated prices are somehow delayed from correcting

  2. F.A. Hayek explained in his 1974 Nobel Prize acceptance speech, entitled "The Pretense of Knowledge," that monetary and fiscal policies are the product of what he called the "scientistic attitude," which is in fact unscientific in that it "involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed."

    Just as they did 36 years ago, when Hayek delivered this seminal speech, the Keynesians today believe there "exists a simple positive correlation between total employment and the size of the aggregate demand for goods and services; it leads to the belief that we can permanently assure full employment by maintaining total money expenditure at an appropriate level."

  3. Thanks for setting up your blog - fantastic. I'm looking forward to keeping track.

    I am sympathetic to the stress Taleb gives to non-linearity. But I think that his talk about the evils of "printing money" is simplistic.

    Naturally, printing money and handing it to the banks isn't a good idea. The result will only be propped-up asset prices to continue the illusion that the banks are solvent.

    Things might be different if, when demand is deficient due to consumer and business deleveraging, the printed money went to consumers to stimulate demand for goods and services.

    What confuses me is how it is that governments printing money can be seen as worse than banks printing it, raising asset prices, indebtedness and therefore economic instability in the process. In freemarketland this would theoretically self correct because irresponsible behaviour would put banks out of business. However, we don't live in freemarketland and we're not moving there any time soon.

    I would like to see you engage with the views represented by Modern Monetary Theory (eg

    I might be wrong. If so, can you explain to me why?

  4. Seems pretty simple really- you find some junky who has overdosed on heroin, and think you will get him up and about by giving him another whack of the thing that took him out in the first place!

    Then you make all the non junkies pay in the future, by setting up heroin factories to keep the junky staggering along.