Apparently, the Swedes have a wicked sense of humor.
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Who would have thought that the country responsible for designing the Volvo and bringing sensibly priced furniture to world would be such practical jokers?
First, with a nod and a wink, they give Barack Obama the Nobel Peace Prize before he’s even had a chance to break in his chair. Now they’ve awarded the coveted prize to a couple of American economists while the world is still reeling from a financial crisis of our making.
Don’t get me wrong; I’m a homer.
I’m the first guy to whoop it up when one of my countrymen takes the medals’ podium in any competitive endeavor, from the butterfly to mumblety-peg.
Although I thought it was a bit premature, I understood the message the Nobel Committee was trying to convey when it selected Obama for the honor. They were rewarding him for not being George Bush. At the same time, it’s also likely that the Committee was giving the prize derivatively to the American people in recognition of their historic vote.
If that was the rationale for the award to President Obama, then the Committee’s latest decision to give the Economics Prize to a couple of Americans has me genuinely flummoxed.
Wrong Choices Again?
This year’s prize-winners in economics are two highly respected professors. Elinor Ostom is tenured at Indiana University while her fellow inductee is a professor of economics at Cal Berkeley. The two will be able to supplement their modest teaching salaries with a half-share of the 10 million kronor ($1.4 million) prize money handed out by the Royal Swedish Academy.
The two Americans were recognized for their work in the field of economic governance.
Not to diminish the accomplishments of Ostom and Williamson, but in light of the wholesale breakdown in American economic governance that in large measure gave rise to the current global financial crisis, it’s more than a little ironic that the Academy’s two latest laureates are getting the Nobel for their work in this field of study.
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The Nobel Prize, whether in chemistry or economics, always seems to go to an academic who otherwise would have been laboring in near obscurity. The best example is mathematician John Nash, the subject of the 2001 academy award winning biopic “A Beautiful Mind.”
If the Royal Academy is going to give awards to influential individuals working in the shadows; why not give it to a fellow like Charlie Munger?
Munger is the Vice Chairman and co-founder of Berkshire Hathaway. Although Warren Buffet is the headliner, most insiders agree Munger has always been the brains of the operation.
Little Known and Brainy
Munger is not your classic academic. But, he has the type of pedigree that should suit the Nobel Committee. He has a mathematics degree from the University of Michigan, was a U.S. Army meteorologist, trained at Caltech and graduated from Harvard Law School.
To devotees of market economics, Munger’s musings are like the Sermon-on-the-Mount. Munger is not widely published. But his book, “Poor Charlie’s Almanac,” a homage to his idol Ben Franklin, is like the Bible to his disciples.
Munger has introduced the concept of “Elementary, Worldly Wisdom” as it relates to business and finance. Munger's worldly wisdom consists of a set of mental models framed as a latticework to help solve critical business problems. According to Munger, only 80 or 90 important models will carry about 90 percent of the freight in making you a worldly-wise person.
To Munger, Incentives are an idea that explains why people behave the way they do. Consequently, he is a strong believer in rewarding managers that succeed and on the other hand, penalizing them when they fail.
The “Lollapalooza Effect” is Munger's term when multiple biases act at the same time; the tendency to get extreme results from confluences acting together. These biases often occur at either the conscious or subconscious level, and on both a microeconomic and macroeconomic scale.
This may not be the kind of purely scholarly work that attracts the attention of the Royal Swedish Academy. But it has the unswerving endorsement of Warren Buffet, the world’s most accomplished investor. Ask Buffet and he will not hesitate to tell you that without the advice and guidance of his fellow Nebraskan, he never would have achieved the success he now enjoys.
In sharp contrast to the showman-like Buffet, Munger shuns the spotlight. Munger, however, draws a smaller, more fanatical cult that seeks inspiration from his intellectual omnivorousness.
During a recent rare public appearance at his old alma mater, Caltech, Munger’s topic du jour was the spiraling credit crisis. Unlike his partner Buffet, known for his charm and folksy humor, Munger is the intellectual curmudgeon.
He flung vitriol at bankers, saying they've been selling investors “a hapless mess of super-complexity.” Munger took aim at the accounting profession, saying it had “disgraced itself” with its lax standards. Not a man to mince words, he went on to say “The idea that we need derivatives is just so much twaddle.”
Despite all this inanity and skullduggery, Munger still sees the investing world as a place where common sense can triumph. If only because it isn't so common.
If the Royal Academy is going to recognize an American for groundbreaking work in the economics, it ought to be a guy Charlie Munger. He’s not only an American all of us can admire, but an intellectual everyone can understand.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
