'Investors could boil over any time'

If you find economists holding their heads up at cocktail parties, pretending to know what they are talking about, trouble may not be far away. For, that is when, you would also find politicians spending even more money that did not belong to them, and consumers enjoying a standard of living they cannot afford, as instructs William Bonner in Dice Have No Memory: Big bets and bad economics from Paris to the Pampas ( www.wiley.com ).

Reminiscing the financial crisis, Bonner writes that never before had so many people been so happily engaged in acts of reckless larceny and legerdemain. “More and more people lived at someone else's expense. Lobbying and lawyering became lucrative professions. Bucket shops and banks neared respectability. Every imperfection was a call for legislation. Every traffic accident was an opportunity for wealth redistribution. And every trend was fully leveraged.”

Ruing that half the US states are insolvent, and therefore preparing to increase taxes, the author is aghast that taxpayers are being asked to pay for the banks' losses. He avers that even if the US taxed 100 per cent of all household wealth, it would not be enough to put its balance sheet in the black.

What the author considers to be the most remarkable proposition of the whole past decade is the idea that the Fed in the US could spur a recovery by creating money out of thin air. Recounting how, in the desperate atmosphere following the Lehman bankruptcy of 2008, the Fed had already used its ‘quantitative easing (QE)' tool, to ‘loosen rusty nuts in the banking system,' he distinguishes the use of tool in the second half of 2010 as a stimulus measure rather than to provide emergency liquidity.

“And this time it was not just putting money into the banking system; now it was funding US government spending. There was no substantive difference between the Fed's QE II programme than Gideon Gono's money-printing in Zimbabwe or Rudolf Havenstein's money-printing in the Weimar Republic.”

One of the opening essays, sombrely titled ‘From funeral to funeral,' brings out the difference between science and finance. Citing the saying that science evolves from funeral to funeral, Bonner explains that each exquisite cadaver is another reminder that there are only two kinds of scientific theories, viz. those that have been disproved, and those that have not been disproved yet.

Conceding that science is all very well for predicting when a soft-boiled egg will be done, he anguishes that it is of little help in predicting when people will get spooked by the market. “At sea level, water will begin to boil at 212 degrees Fahrenheit. Investors could boil over any time.” Alas, as the author laments, scientific market forecasts and detailed economic models pretend that man is something he definitely is not – reasonable and rational.

Engaging compilation of essays for the finance professionals' shelf.

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