In our 2010 book “Alchemists of Loss” Kevin Dowd and I examined the record of Wall Street risk management leading up to the 2007-08 financial crisis and concluded that it was seriously lacking. The universal assumption of “Gaussianity” caused participants to lose sight of the possibilities of “fat tails” where the probability of bad outcomes is seriously understated and “long tails” where potential outcomes are far worse than the model shows. It is by no means clear that Wall Street has cleaned up its act (certainly, it has not employed us to help it do so)! It is, however, increasingly clear that the mis-assessment of risk spreads far beyond Wall Street. Continue reading →

The investment management business has suffered from investors moving their money to index funds, which have much lower fees and are purely mechanical in their investments. Also, much investor money has been diverted to private equity and hedge funds in the belief that those investments offer higher returns. The Efficient Market Hypothesis suggests that it is impossible to outperform the market, yet numerous professional investors substantially underperform it, which by the EMH ought to be equally impossible. Yet investment managers are not stupid; they are by and large among the most intelligent and well educated of mankind. I would suggest that the problem is structural: the act of managing money for somebody else, whether a client or a committee that can remove your job, produces incentives that are highly detrimental to good investment performance. Continue reading →

The U.S. Congress is currently debating the Budget for the year to September 30, 2026, where past mostly Biden-era profligacy has left a $2 trillion deficit. I want therefore to discuss what the final Budget should contain, focusing mainly on the tax provisions rather than the expenditure cuts, which should clearly be as Draconian as possible. There is much facile moaning about the end of U.S. economic hegemony; it can be restored, but only with a collection of provisions that close much of that $2 trillion hole. I will also discuss how much closure is needed. Continue reading →

President Trump’s announcement of sweeping tariffs sent the markets into a tailspin last week – as I forecast in January, the Biden stock market bubble is finally bursting, and about time too. The hysterical reaction from the left and the economic Whigs of globalization resembles that which faced Lord Liverpool when he introduced the Corn Laws in March 1815. Like the Corn Laws, Trump’s tariffs are sound policy, as I said two years ago when Trump first proposed them, although I would favor lower rather than higher tariffs, being a fan of the 1850s “Doughface” low-tariff, small-government approach to economics rather than the “Billion Dollar Congress” of the post-Lincoln Republicans that passed the 1890 McKinley Tariff. However Trump must stand firm as the record market bubble finally deflates and the economy de-financializes, to the great benefit of ordinary people. Continue reading →

Ever since the Bretton Woods exchange rate system ended in 1971, the world has used exchange rates between most currencies that float freely. After 54 years, we can surely say this has not worked; the dollar price of gold, the truest indicator of real inflation, is approaching 100 times its $35 Bretton Woods price. The theft of Russia’s currency reserves in 2022 also shows that the dollar is an international means of exchange that cannot be relied upon, being controlled by fallible politicians. Absent a vanishingly unlikely outbreak of discipline in the Fed and the world’s other central banks, a Gold Standard is the best viable alternative. Continue reading →

CDU chief Friedrich Merz’s economically suicidal net-zero constitutional change in the Bundestag and the recent spate of anti-capitalist legal judgements in Britain and the U.S. highlight the alarming rise in economic illiteracy not only in the legal profession, but among politicians, journalists and pundits in general. Big Government, regulation and above all the rise of the pernicious nonprofit and consultancy sectors have dangerously reduced the percentage of our masters who have ever had to meet a private sector payroll or understand what it requires to do so. Remedying this will take more than one short-term fix of Elon Musk. Continue reading →

Canada’s prime minister Mark Carney flew to London last week for talks with Britain’s Kier Starmer, both of them upset about President Trump’s aggression, populism and protectionism. Starmer’s immediate instinct, to snuggle ever closer to the corrupt rotting carcass of the European Union will do Britain no good, nor will Carney’s instinct to create a global socialist authoritarian uber-state achieve anything for Canada. Instead, to protect themselves against the new assertive United States, they should revive an idea that would fill both men with horror: Imperial Preference (and yes, they should call it that, not some feeble woke alternative, as I will explain)! Continue reading →

The Atlanta Fed’s advance estimate of Gross Domestic Product for the first quarter has recently turned sharply negative, to caterwauling glee from the usual suspects in the media and the Blob. Their rapture is economically irrational; GDP was deliberately designed to include government spending, thus flattering orgies of waste such as the Biden administration. It is far past time to turn to Gross Private Product, a measure that reflects only those outputs with measurable value in the market. On that measure, the picture for 2021-25 is much grimmer and that for 2025-29 will be brighter than on the official cooked statistics. Hopefully the voters in November 2026 and 2028 will notice their additional well-being and distribute their favors accordingly. Continue reading →

Germany’s voters last week produced a massive demand for greater freedom, with the nationalist AfD’s share of the vote more than doubling to 20.8%. The outgoing government parties all did badly, the SPD losing 9% of the vote, the Greens 3% and the free-market FDP damaged so badly by its participation in the socialist coalition that it fell out of the Bundestag entirely. Yet the likely incoming chancellor Friedrich Merz promptly ignored the will of the voters and announced his intention to coalesce with the SPD, thus condemning Germany to another half decade of explosive immigration and climate change mania economic collapse. Learning from history is not a German skill and nor is responsiveness to voters. Continue reading →