An anonymous math department chairman reports on his own strategy for cutting down on the workload. He believes that one of the most important determinants of a successful career is luck. So each year, he randomly rejects half the applicants without even reading their folders. That way, he eliminates the unlucky ones.

These massive trading gains being reported by Wall Street banks, however, do not represent economic profits from capital deployed in value-added service to the household and business sectors; that is, they are not comparable to returns from underwriting new equity issues for corporations or providing asset management services to households. Rather, they amount to pure rents extracted from valueless, hyperactive trading inside the Fed’s artificially steepened yield curve. To be sure, the dead-weight economic cost of this pointless churning of the secondary markets in securities and derivatives may not be fatal. But at the end of the day, it does represent a massive, unjustifiable income transfer from the struggling multitudes to the fortunate few, and a demented social policy that forces investors to incur great risks to obtain any return at all on their savings. As a high-yield manager noted upon the recent return of the junk bond index all the way back to par (from 55% at the bottom) “… the high-yield market is strong. The Fed.. is forcing investors into areas where they can collect a reasonable spread over Treasuries.” But what does herding granny into junk bond funds or junk stocks have to do with full employment, it might be asked.

As sovereign debt crises unfold, you will see increasingly innovative attempts to avoid uttering the simple words: “The government spent too much money here.”

The CEO of Deutshe Bank echoed today what many of us know but European officials and the ECB don’t want to admit as evidenced by the historic bailout plan. In an interview he said “I would doubt that Greece over time will be in a position to come up with the economic potential” to pay its debts. If Greece, Portugal and others can’t generate nominal GDP growth above its cost of funding, they enter a debt death spiral that can only be rescued by debt extinguishment thru restructuring which then lays the foundation for future growth.

In fact, Hayek proves in “Profits, Interest and Investment” that ngdp will collapse after a boom no matter what the Feds do with interest rates. Even if the Feds could make nominal interest rates negative at say -5%, the boom would still bust because the bust has to do with the shift in profits from once sector to another. In short, rising ngdp makes consumer goods profits much higher than profits for capital goods makers, so investment shifts to consumer goods makers. Unemployment collapses in capital goods, which then triggers the collapse in ngdp.

But as long as there is some shred of a market available, entrepreneurs find a way. They see opportunities others don’t. They take financial risks that most people would consider unfathomable. The government edicts, bureaucratic roadblocks, and oppressive taxation that discourage the hardiest of souls only serve to challenge and inspire creative entrepreneurs while weeding out potential competitors. All of the wonderful goods and services that we enjoy are due to entrepreneurship and the firms that are created to carry out the dreams of the entrepreneur and serve customers.