by Jeffrey P. Snider
Alhambra Partners
It is human nature to extrapolate in straight lines, to take what is as what should forever be. In economic statistics, tail risks continue to live outside the tails because the math can never get past that limitation. No matter how sophisticated the “jump diffusion” tendencies, no one can predict inflections. This is not to say there aren’t warnings, usually there are. But institutional inertia particularly with regard to apparent prosperity is a powerful force of destructive capacity.
In 1927, John Maynard Keynes confidently declared, “there will be no more crashes in our time” such was his faith in centralized man. Despite the error revealed in disastrously in just three years’ time, in August 1971 President Richard Nixon famously appropriated Milton Friedman’s earlier declaration that “we are all Keynesians now.”