Black Swan, White Swan, Orange Swan, Dead Swan Part II

The whitewashing of risk by the smartest guys in the room

In part I of this series I traced the evolution of the two value systems that have defined the post WWII US economy. From the late 1970s to the early 1980s we transitioned from the fourth level value system defined by the meta-meme of Big Brother knows best to the fifth level value system still being defined today by the new meta-meme of the smartest guys in the room know best. This worldview penetrated every aspect of American society. Its most visible markings were the introduction of Raeganomics, the ideologies of monetarism, and a new Federal Reserve bank that replaced the old ways of measuring productivity with modern econometrics focused on the private sector.

This transition was also marked by a clear departure from Keynesian economics which included the role of government as a major stakeholder in policy setting. This new era embraced a revived version of the Austrian School of Economics called the Chicago School. The critical thought leader at the Chicago School was economist Milton Friedman who liberated monetary policy from its boring linear role and made the corporate stockholder the primary beneficiary of the new system. In a few short years, the smartest guys in the room were being worshipped as the saviors of the…