The United States Treasury is Running Out of Suckers
I'm a fan of Nassim Nicholas Taleb, who has written beautifully about the business of understanding financial risk. His most recent book, The Black Swan, has been talked about to death in the wake of 2008's financial collapse, but for my money his earlier book, Fooled By Randomness is a lot more accessible.
In an interview in the current issue of Bloomberg Businessweek, Taleb offers a very basic strategy for personal financial management:
We have this culture of financialization. People think they need to make money with their savings rather with their own business. So you end up with dentists who are more traders than dentists. A dentist should drill teeth and use whatever he does in the stock market for entertainment.
People should have three sources of variation in their income. The first one is their own business that they understand rather well. Focus on that. The second one is their savings. Make sure you preserve them. The third portion is the speculative portion: Whatever you are willing to lose, you can invest in whatever you want.
That second source is tricky, though, especially if you accept Taleb's dark view that massive government debts are going to be trouble:
As an analogy: You often have planes landing two hours late. In some cases, when you have volcanos, you can land two or three weeks late. How often have you landed two hours early? Never. It's the same with deficits. The errors tend to go one way rather than the other. When I wrote The Black Swan, I realized there was a huge bias in the way people estimate deficits and make forecasts. Typically things costs more, which is chronic. Governments that try to shoot for a surplus hardly ever reach it.
The problem is getting runaway. It's becoming a pure Ponzi scheme. It's very nonlinear: You need more and more debt just to stay where you are. And what broke [convicted financier Bernard] Madoff is going to break governments. They need to find new suckers all the time. And unfortunately the world has run out of suckers.
Let's hope there are still some suckers left. Besides us, I mean.
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Jun '10
Re: The United States Treasury is Running Out of Suckers
I think one of the most underestimated economic factors is demography. That's probably the main reason that Japan never really recovered from it's recession. The Japanese real estate market certainly didn't recover. Half of their population is retired or preparing for retirement, and probably has pretty much everything they want already. Soon they may want less. That makes Japan depend on the rest of the world not only for their energy, but for most of their growth.
Re: The United States Treasury is Running Out of Suckers
I think you're absolutely right about Japan, etoiledunord, but I rarely hear people talk about it that way. When they talk about the Lost Decade (now going on the Second Lost Decade) of the Japanese economy, it's always a question of too much or too little stimulus, or banking reform, or something. It's never about the almost upside-down population -- too many old people retiring; too few young people entering the work force -- which is something we'll face here, soon enough. Eventually people are going to figure that out. And when the bond markets stop letting us borrow at whatever rate we decide to set, we're on the short slippery slide into Greece-ville. And it happens fast.
May '10
Re: The United States Treasury is Running Out of Suckers
A very Steyn-ian proposition. And speaking of Steyn....A) Anybody know when he'll be back in action? B) Is he putting the finishing touches on a book or something? C) He needs to put a link to Ricochet on his site while it's shut down: Ricochet would be getting traffic from all over the world, and D) Rob is filling in ably on the NR backpage, easing our withdrawal.
Jun '10
Re: The United States Treasury is Running Out of Suckers
I suppose it's for good reason that economics is known as the dismal science. I can listen to economists argue, but the effort rarely adds any clarity to my understanding. Peter did an Uncommon Knowledge with just such a pair about two weeks ago. They agreed that a Greek-style debt crisis for the US rates about a 2 on a 1 to 10 scale of possibilities. I fall back on a layman's intuition, which is to assume that if I can't borrow recklessly, then neither can the government without serious repercussions.
I'm unsure about the future from a socio-historical perspective as well. Are we Rome in the dying days of empire, or as VDH contends, are we still a republic with vast potential in natural resources and native talent? It bothers me to know so many people who are rent seekers rather than producers. The former trend is clearly a sign of societal decadence. I mean, regardless of your standard of living, are we each not obliged to find meaningful work? Are we not required to contribute something more than our appetites?
I hope for better, but I'm planning for worse.
May '10
Re: The United States Treasury is Running Out of Suckers
Rob, I appreciate your mention of N.N. Taleb.
While The Black Swan has been "talked to death" in your mind, I think it still needs to be circulated and recommended.
It checked my thinking about a great many things, and not just financial. There is a maturity and grace in realizing how poorly we predict the future.
Jun '10
Re: The United States Treasury is Running Out of Suckers
The CBO recently released a very disturbing study of U.S. debt. In a nutshell, the U.S. is hurtling toward a crisis that could destroy it unless immediate action is taken. The consequences include higher taxes, cuts in government expenditures, reduced private investment in productive activities, and reduced ability to respond to domestic and international crises. Once investors lose confidence in the U.S., these problems could become unmanageable very quickly. Everyone should read this.
Re: The United States Treasury is Running Out of Suckers
Many thanks, Scott. And speaking of Mark....we hope he'll be back soon. When you do as much as he does -- all of that writing! -- you've more that earned the right to shut down to recharge your batteries.
Jun '10
Re: The United States Treasury is Running Out of Suckers
I think the success of this venture will hinge not on writing about important topics, but making important topics interesting to read about. I find the last few days quite refreshing when I compare it with my other favorite conservative publication, the WSJ Edit page,,, which is sad to say, serious, but boring....
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The natural take of your contributors takes this down a different track that makes it interesting for conservatives....