Edward Quince’s Wisdom Bites: The Unseen Force of "Febezzle" and How We All Feel Richer

Have you ever felt wealthier than you actually are, caught in a wave of economic good times? You might be experiencing a phenomenon the late, great Charlie Munger called "febezzle"—the functional equivalent of the illusion of wealth created when someone embezzles funds, but before the crime is discovered.

Munger coined the term to describe the temporary, feel-good effect of embezzlement. Before the theft is known, the embezzler feels richer from their ill-gotten gains, and the victim, unaware of the loss, also feels just as wealthy. This creates an artificial boost in perceived wealth that fuels spending and economic activity—until the inevitable reckoning.

Munger, a master of multidisciplinary thinking, extended this concept far beyond simple crime. He argued that a similar, more subtle "febezzle" exists in finance and government. For instance, an investment manager collecting fees on rising asset prices feels virtuously richer, as does the investor whose statement shows gains, even if those gains are just part of a speculative bubble. Both parties are spending from a "wealth effect" that can dissipate when asset prices fall. This can lead to a misallocation of capital into unproductive projects that cannot be sustained once the "febezzle" unwinds.

This idea even applies to government policy. When the government runs large deficits financed by printing money, it can create a temporary economic boom. Consumers and businesses feel wealthier and spend more, driving up demand. But this "wealth" is not rooted in productive growth; it's an illusion that ultimately gets unwound through inflation, which acts as a hidden tax.

The Takeaway: Munger's concept of "febezzle" is a powerful reminder to question the source and sustainability of wealth and economic booms. Are the gains real, stemming from productive activity, or are they an illusion fueled by leverage, speculation, or fiscal stimulus? Munger’s advice was clear: "when the financial scene starts reminding you of Sodom and Gomorrah, you should fear practical consequences even if you like to participate in what is going on". Look beyond the surface-level gains and ask whether the underlying value is real or just a temporary, pleasant fiction.