Mark Spitznagel and Nassim Taleb Talk Inequality

Mark Spitznagel has recently issued a book where he tries to use Böhm-Bawerk’s capital theory in order to explain his tail-hedging strategy. The book is somewhat lengthy and has some redundancies, but is a good introduction to Austrian Capital Theory and how it is different from mainstream economics concept of capital (as used by Piketty for example).

In this interview they talk about inequality (Spitznagel’s statements on Piketty are a good summary of an Austrian’s view of this book) and how it is caused by the Fed. By trying to avoid short-term pain (recession) the Fed eliminates failures which has two main negative side effects:

  • preventing recessions and failures and leads to less downward mobility of the rich and potential social tensions (“lack of fairness”)
  • comes at increasing unstability down the road (“myopic shortsightedness” of decision makers (Wall street, politicians) due to skewed incentives)

Spitznagel also mentions that Piketty failed to notice that, according to his own data, measured inequality was/is highest in 1929 – right before the great crash – and now, the two most notorious periods of the biggest monetary-induced asset bubbles in recorded history. Chance? While the verdict is still out on the current period and many observers think markets are generally not frothy, I definitely agree with Mark. After all, it has been declared policy of the Fed to raise asset prices in order to “kick-start” the economy (for mainstream economists the economy is best understood as a machine rather than as an organism). So if you really believe markets are not unnaturally high, it implies you think that the Fed has not accomplished its mission. In this case, you probably should also not bet on the Fed’s ability to exit its unusual monetary arrangements in an orderly fashion…

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