Calling into Question
John Mauldin
Oct 15, 2014
A note has been circulating among economists, calling into question the wisdom of another group of economists who wrote an open letter to the Federal Reserve a few years ago suggesting that one of the risks of their quantitative easing program was increased inflation. Since we have not seen CPI inflation, this latter group is calling upon the former to admit they were wrong, that quantitative easing does not in fact cause inflation. To no one’s surprise, Paul Krugman has written rather nastily and arrogantly about the lack of CPI inflation.
Cliff Asness has responded with a thoughtful letter, with his usual tinge of humor, pointing out that there has been inflation, it just hasn’t been in the CPI. We’ve seen it in assets instead. That money did go someplace, and it has disrupted markets. So why is Cliff’s letter a candidate for Outside the Box, when the markets seem to be bouncing all over heck and gone?
Because, come the next crisis, there is going to be another move for yet another round of massive quantitative easing. And the justification will be that increases in the money supply clearly don’t have much to do with inflation.
I should note that while I did not agree with the original letter (I thought we were in an overall deflationary environment, and I wrote that the central banks of the world would be able to print more money than any of us could possibly imagine and still not trigger inflation – views came in for considerable pushback), my reasons for believing QE2 and QE3 were problematic dealt with other unintended consequences. And ultimately, as global debt gets restructured (which will take many years) inflation will become a problem. Did you notice how Greek debt spreads blew out yesterday? It’s not just about oil. And trust me, France is going to be the new Greece before we know it. The people who think they can control markets and direct investors like sheep are going to be in for a huge surprise, but the nightmare is going to be visited upon the participants in the market.
We then move to a few thoughts from Peter Boockvar, in a letter he writes to savers, noting that the same people who brought you quantitative easing are also responsible for the demise of any income that might possibly have come from saving.
I wish I had good advice for your savings, but I can’t advise buying stocks that have only been more expensive in 2000 on some key metrics right before you know what, and I can’t recommend buying any long term bond as the yields also stink relative to inflation. With the Fed now saying that the dollars in your pocket are now worth too much relative to money in people’s pockets overseas and thus joining the global FX war, maybe you should buy some gold, but I know that yields nothing either. You are the sacrificial lamb in this grand experiment conducted by the unelected officials working at some building named Eccles who seem to have little faith in the ability of the US economy to thrive on its own as it did for most of its 238 years of existence. Borrowers and debt are their only friends. To you responsible saver that worked hard your whole life, may you again rest in peace.
And then we finish with some thoughts from our friend Ben Hunt, who takes exception to being told how to think and believe and act by “those smart people with degrees” who only want to do what’s best for us. Not just in economics but with regard to ISIS and Ebola and everything else. After reading Ben’s essay I called him and said, “Me too!”
I am tired of being manipulated, placated, spin-lied to (if it’s not a word it should be), mutilated, spindled, and folded.
We have to keep our eyes open and entertain the possibility that central banks will “lose the narrative,” that is, their ability to control markets with simple statements. The BIS recently had this to say:
Guy Debelle, head of the BIS’s market committee, said investors have become far too complacent, wrongly believing that central banks can protect them, many staking bets that are bound to “blow up” [at] the first sign of stress.
Mr. Debelle said the markets may at any time start to question whether the global authorities have matters under control, or whether their pledge to hold down rates through forward guidance can be believed. “I find it somewhat surprising that the market is willing to accept the central banks at their word, and not think so much for themselves,” he said. [Source: Ambrose Evans-Pritchard, “BIS warns on 'violent' reversal of global markets”]
The 10-year US Treasury slipped below 2% earlier today, but has rebounded somewhat to 2.06% as I write. Oddly, the yen seems to be strengthening slightly as the stock markets once again fall out of bed. Oil continues to weaken. As noted above, Greeks spreads are blowing out. Super Mario needs to get on his bike and start peddling before that concern spreads to other nations almost as insolvent. France will soon be downgraded again. Don’t you just love October?
What an interesting time to hold a midterm election. Have a great week!
Your really thinking through the implications of a stronger dollar analyst,
John Mauldin, Editor
Outside the Box
The Inflation Imputation
By Cliff
Asness, AQR Capital Management LLC
In 2010, I co-signed an open letter warning that the Fed’s experiment with an
unprecedented level of loose monetary policy – in amount, and in unorthodox
method – created a risk of serious inflation. Sporadically journalists and
others have noted that this risk has not come to pass, particularly in consumer
prices.
Recently there has been an article surveying each of us as to why; seeming to relish
in, when provided, our various rationales, presumably as they sounded like
excuses. It seems none of the responses provided what the authors clearly
wanted, a blanket admission of error. I did not comment for that article,
continuing my life long attempt not to help reporters who’ve already made up
their mind to make fun of me – I help them enough through my everyday actions,
they don’t need more!
More articles of similar bent keep showing up. The authors seem
to find it amusing that four years of CPI data wouldn’t get people to change
their economic views, while ignoring that 80 years of overwhelming evidence has
not dissuaded Keynesians from the belief that this time, if they could only run
everything, not just most things, they’d really get it right.
Focusing my attention, as was predestined, Paul
Krugman lived up to his lifelong motto of “stay classy” with a piece on the
subject entitled Knaves, Fools, and Quantitative Easing.
Some lesser lights of the Keynesian firmament have also jumped in (collectivists, of course, excel at sharing a
meme). Responding to Krugman is as productive as smacking a skunk with a tennis
racket. But, sometimes, like many unpleasant tasks, it’s necessary. I will, at
least partially, make that error here, while mostly trying to deal with the
original issue separate from Paul’s screeds (though one wonders if CPI
inflation had risen in the last four years if Paul would be admitting his
entire economic framework was wrong – ok, one doesn’t really wonder – and those
things never happen to Paul anyway, just ask him).
Let me say up front that this essay will satisfy
nobody. Those looking for a blanket admission of error will get part of what
they want; a small part. Those hoping I hold the line denying any misstep will
also be disappointed. I believe truth, as is often the case in similar
situations, lies in the middle of these and I prefer truth, as I see it, to any
reader walking away sated.
We indeed warned about the risks of inflation in
2010 and the CPI has been, to put it mildly, benign since then. First, to give
the baying crowd just a bit of what it wants (I will take some of it back
soon), our bad (I
say “our” but obviously I speak only for myself). When you warn of a risk and
it doesn’t come to pass I do think you owe the world this admission, even if
you later explain what it means to warn of a risk not a certainty, and offer
good reasons why despite reasonable worry this particular risk didn’t come to
pass. I, and many other signatories, live in the world of economic or political
prognostication, in my case money management, where if you get a bit more than
half your calls right you are doing quite well, more than a bit more than half,
you’re doing fabulously. I’ll put our collective record up against Krugman’s
(and the Krug-Tone back-up dancers) any day of the week and twice on days he
publishes.
Let’s start with the big one. We did not make a
prediction, something we certainly know how to do and have collectively done
many times. We warned of a risk. That’s a very specific choice people like the
open letter writers, and Paul, have to make all the time, and he knows this,
but that doesn’t deter him. Rather, Paul engages in the old debating trick of
mentioning this argument himself and dismissing it. This technique worked for
Eminem at the end of Eight Mile.
But let’s not be fooled by chicanery (silly Paul, you are no Rabbit). If I had
wanted to make a prediction, I would have made one. I didn’t, nor did my fellow
signatories. Frankly, if there are any economists, aside from those
never-uncertain-but-usually-wrong like Paul, who did not think such
unprecedented Fed action represented at least a heightened risk, I think it was
malpractice on their part. An honest Paul Krugman (we will use this term again
below but this is something called a “counter-factual”) would have agreed with
our letter but qualified that while heightened, he still didn’t think this risk
would come to fruition and that he thought it was a risk worth running. Still,
I will give the critics half credit here, accept half blame, and issue a demi mea culpa. By writing
the letter we clearly thought this risk was higher than others did, and wished
to stress it, and it has not (as most commonly measured) as of now come to
bear. Our, and my, (half) bad. I hope that makes the critics (half) happy and
they can stop copying each other’s articles over and over again.
Of course being able to call out risks, not just
make firm predictions, is quite important. If you believe the risk of an
earthquake is 10 times normal, but 10 times normal is still not a high
probability, it’s rational to warn of this risk, even if the chance such
devastation occurs is still low and you’ll look foolish to some when it, in all
likelihood, doesn’t happen. If you can’t point out risks you are left with
either silence as an option, or overly and falsely self-confident forecasts.
Perhaps the latter may work for former economists turned partisan pundits but
the rest of us will have to live with the ex ante and ex post ambiguity of
discussing risks. It’s a real subtlety but I think there is truth somewhere in
between the current attack meme of “you predicted inflation risk and were wrong
and are now hiding behind the word ‘risk’“ and “we only said it was a risk so
we cannot be wrong.” I thin k when you boldly forecast a risk you are saying
more than “this might happen but either way I can’t be blamed” and something
less than “this will happen and I stake my reputation on it.” We should all be
mature enough to know the difference, but apparently that ship has sailed...
Not surprisingly, the above stress on risk jibes
with my personal view of monetary policy, one that might not be shared by all
my co-signatories. I tend to think it matters less than most think, and matters
less often than most think. I tend to view it, for finance fans, in a
“Modigliani Miller” (MM) framework, where most corporate financing transactions
are paper-for-paper, mattering little. But, in the MM framework bankruptcy
costs do matter. Therefore most corporate capital structure decisions are
irrelevant, except to the extent they increase the chance of serious financial
distress, in which everyone but the lawyers lose (in many models this risk must
be balanced against the tax advantages of debt).
From this perspective, slight adjustments to the
target Fed funds rate based on exquisitely sensitive perceptions of the
probability of economic overheating or slowdown probably make little difference
(and don’t even start me on the dots), but deflation or excessive inflation are
important to avoid as their damage can be great. They are the bankruptcy costs
of monetary policy. Thus, I think sounding the alarm, not making a prediction,
that experimental and aggressive monetary policy raised one of these risks was
appropriate. But, still, I think most people engaged on the topic spend a lot
of time talking about monetary policy in the same way dogs spend a lot of time
talking, yes in their secret dog language, about the cars they chase. The cars
aren’t affected and generally don’t care.
Now, if you thought the above was an excuse on
par with, continuing my canine fixation, “the dog ate my inflation,” and not
the demi mea culpa
I intended, you’re really going to hate the full blown non-conciliatory excuses
about to come.
Economically, I think what everyone of any
political or economic stripe missed, certainly including myself, was how little
money would circulate, how little would be lent and then spent. In econo-geek,
how low the money multiplier would be. Money kept by banks at low but positive
interest rates at the Fed clearly isn’t doing much of anything, creating
inflation as we feared, or helping the economy as they hoped. To the extent
inflation worriers like us were wrong, so were those predicting great economic
benefits. The Fed clearly wanted this money lent by banks and spent by
companies on investment and by people on consumption. They didn’t get that, and
we didn’t get the inflation we feared. This is not to say that low interest
rates, real and nominal, and high prices for risky assets (and the supposed
“wealth effect” that comes with them) were not Fed goals. They clearly were.
But it seems these intermediate goals have not had their desired effect on the
real economy.
Quantitative easing (QE) and other inventive
forms of loose monetary policy have simply been less than hoped or feared. Some
may declare Fed policy a great success as we’re not in a depression, but they
can’t show any counter-factual, and given that this money has largely sat
dormant, albeit presumably lowering risk premia (raising asset prices), it’s
likely we’d have a similar record-weak recovery with or without it. How this is
a victory for one side of the debate or another is beyond me, but obviously
clear to Paul and his back-up singers. Of course, it’s also clear to Paul that
the 2009 stimulus package saved us from this same second Great Depression (but
more stimulus would of course have been much better). Yep, and if we traded
good cash for just one more “clunker” we’d be growing at 5% per annum by now
with a normal labor participation rate.
By-the-way, ignored in the critics’ review of
the original letter was the line, “In this case, we think improvements in tax,
spending and regulatory policies must take precedence in a national growth
program...” On this I’m unapologetic. We were right, we’re still right, and
thanks to people like Paul we’ve moved in the wrong direction. But that’s a
fight for another day.
In a field without a broad set of
counter-factuals we all stick too much to our priors and ideologies, and
perhaps I’m doing that now. But at least I see it, and that’s always step one.
Paul is stuck on step zero (if he ever gets up to “making amends” I will be
around but given his history he might never get to me). But, if you’d like to
advance past step zero, Paul, we’re still waiting on why Keynesianism failed to
fix the Great Depression (no doubt not quite enough stimulus; just one more
Hoover Dam would have done it, or, as they called it back then, “Dams for
Clunkers”), strongly predicted a deep post-WWII depression, didn’t predict
stagflation, and generally was on a the downward spiral to the intellectual
dustbin until the great recession resuscitated it, not as a workable
intellectual doctrine, but as an excuse for politicians to spend on their
constituents and causes.
Also remember, much like when the Germans bombed Pearl Harbor, nothing is over yet. The Fed
has not undone its extraordinary loose monetary policy and is just now stopping
its direct QE purchases. When monetary policy is back to historic norms, and
economic growth is once again strong, a normal number of people are seeking and
getting jobs, and inflation has not reared its head, I think we can close the
books on this one, still recognizing that forecasting a risk and having it fail
to come to bear is not a cardinal sin. But which one of those things has
happened yet? Paul, and others, should by now know the folly of declaring
victory too early.
At the risk of enraging a whole different group
(I promise I’m not denying anything I’m just making an analogy, and one I know
is very far from dead on) I’m amazed that a Paul Krugman can look at 15+ years
of the earth not warming and feel his beliefs need no modification or
explanation, but 4 years of the CPI not inflating is reason not simply to
declare victory, but to decry those who disagree with him as “Knaves and
Fools.” In fact, rather than also anger Mr. Gore and Steyer, I hope they find
this paragraph supportive as I’m saying these debates are rarely settled in
either direction in short time frames. Now, if I were cheekier (cheek is not
denial!) I’d ask if perhaps our letter was right and the inflation we predicted
is in fact occurring in the depths of the ocean? Or, maybe we should ex post
relabel our letter a warning of the risk of “extreme price action” including of
course the extreme stability we have experienced in CPI these last few years.
Now, while not pointing to the actual ocean it
is fascinating where inflation has shown up. Don’t limit your view of inflation
to the CPI. No, this isn’t a screed where I claim to have invented my own consumption
basket showing inflation is rising at 25% per annum – though some of those
screeds are interesting. It’s the far simpler observation that we have indeed
observed tremendous inflation in asset prices since this experiment began (of
course this was part of the Fed’s intent – but it was meant to stoke real
activity not an end unto itself!). Stocks, the spreads on high yield bonds,
real estate, you name it. Inflation is hard enough to forecast, but where it
lands is even harder. If one counts asset inflation it seems we’ve indeed had
tremendous inflation. While admittedly difficult to prove, as is any of this if
we’re being honest as economics rarely offers proofs, you’d be hard pressed to
find many economist s or Wall Street professionals who don’t see current extremely high asset prices, and low forward looking
returns to investors, as at least a partial consequence of the cocktail of QE,
loose monetary policy, and financial repression. I understand Paul and others
wanting to avoid this as not only does it show that they have no right to crow
on inflation, but that the policies they advocate, and we decried, have had
little effect on the economy but instead have, at least partially
intentionally, exacerbated the inequality Paul spends the other half of his
columns excoriating (while of course living himself off the global median
income in protest and solidarity).
By-the-way, again the critics somehow manage to
skip another prescient forecast in this same short open letter. We explicitly
worried that the Fed’s policies “will distort financial markets and greatly
complicate future Fed efforts to normalize monetary policy.” That’s econo-geek
for “will drive financial market prices up and prospective returns down, and create
financial instability when the Fed tries to stop.” Again, while this would
perhaps not surprise the Fed, which actively desired low interest rates and a
“wealth effect,” it seems that a fair reading shows that this much maligned
letter wasn’t as wrong as the critics say, and was very right in ways the
critics ignore.
Moving on, please recall that many, not all,
supporters of QE and very loose monetary policy in general, did so exactly
because they thought it would create some inflation, and they thought (and many
still think) that’s what the economy needs. We, we the letter signers, are
responsible for our own forecasts, but you might forgive us a bit for taking
the other side at their word!
Bottom line, the half mea culpa above was not a
throw away. When you go out of your way to warn of a risk and after a suitable
period that risk has not come to bear, at least where everyone, including you,
expected it, you should admit some error, and I do. But there is a still a big
difference between pointing out a risk and making a forecast (hence the half
admission!). A big reason this risk hasn’t come to fruition is, while not as
dangerous so far as we thought, it appears QE was only mostly useless. To the
extent even that is only mostly true, where effects did show up, it actually
caused rather a lot of inflation, but inflation that went straight into the
pockets of those who needed it least and whom Paul wouldn’t swerve his car to
avoid. That is, it inflated financial assets, benefited the rich, and enhanced inequality.
So, to those who’ve been waiting for one of us
to say it, you can have half the mea
culpa you clearly want, but mostly Paul is wrong, and twisting the
facts, and doing so as rudely and crassly as possible, yet again. The rest of
the JV team of Keynesians who have also jumped on board are doing the same
thing, just with more class and less entertainment value than the master.
Now for a real prediction: Paul will continue to
be mostly wrong, mostly dishonest about it, incredibly rude, and in a crass
class by himself (admittedly I attempt these heights sometimes but sadly fall
far short). That is a prediction I’m willing to make over any horizon, offering
considerable odds, and with no sneaky forecasts of merely “heightened risks.”
Any takers?
Cliff Asness is Founding and Managing Principal
of AQR Capital Management, LLC
Dear Saver, May You RIP
By Peter Boockvar, The Lindsey Group LLC
Dear Saver,
To the forgotten and misunderstood soul, may you
rest in peace. There just seems that nothing can save you now. You were bloody
and battered after the stock market bubble crashed in 2001 and 2002. Afterward,
you stuck with stocks but also decided to play it safe in real estate. That was
ok for a few years but your stock portfolio fell again by 50% and while you
have a great new kitchen and wood paneled library, the value of your house is
now worth much less than your mortgage. I know, renting can be so much easier!
But some guy named Greenspan said something about a wealth effect.
Finally you said enough is enough. You wanted a
safe, conservative place for your savings where living off fixed income of
mostly CD’s and bonds was possible. Maybe you’d buy an occasional stock again
but maybe not. You called your local branch banker and were told that for the
privilege of being a Platinum Honors client that you would be able to secure a
better rate on a money market savings account. Nice! You were told that you’d be
able to get .10%, more than triple the standard rate of .03% that the average
person gets! Disgusted, you went online and saw this great add on the Bank of
America website, it said “With a Featured CD I can earn a fixed rate on my nest
egg.” Sounds enticing until you scrolled down the page and saw it paid .08% for
a fixed 12 month term. It had to be a typo but unfortunately it was not.
Questioning now how you can ever retire on your
savings after working hard for the past 40 years, you decided to find out who
can possibly be responsible for these pathetic yields when you know your cost
of living is rising well above the 1.5-2% that these statisticians at the
government keep telling you. You ask what an hedonic adjustment is? Don’t worry
about it because the purchasing power of your money relative to inflation has
been declining day after day for at least 6 years now. This is madness you say.
I agree.
You started to read the papers and watched the
news and learned that the men and women that work at the Federal Reserve,
mostly economists who call themselves central bankers, sit around a large table
and decide what the right interest rate should be. Ok you say, they are smart,
they have models created by people that likely did really well on their SAT’s,
they know what they’re doing and this can’t last. Well, I’m sorry to say to
you, we’re 6 years into zero interest rates and these people have no intention
of ever saving your savings. You’re screwed and even though they say it’s in
your best interest because zero rates and money printing will help the economy,
don’t believe them anymore because the strategy has failed. After all, If these
policies actually worked, I wouldn’t be writing this letter to you.
I wish I had good advice for your savings but I
can’t advise buying stocks that have only been more expensive in 2000 on some
key metrics right before you know what and I can’t recommend buying any long
term bond as the yields also stink relative to inflation. With the Fed now
saying that the dollars in your pocket are now worth too much relative to money
in people’s pockets overseas and thus joining the global FX war maybe you
should buy some gold but I know that yields nothing either. You are the
sacrificial lamb in this grand experiment conducted by the unelected officials
working at some building named Eccles who seem to have little faith in the
ability of the US economy to thrive on its own as it did for most of its 238
years of existence. Borrowers and debt are their only friends. To you
responsible saver that worked hard your whole life, may you again rest in
peace.
Sincerely yours,
Peter Boockvar
Managing Director
Chief Market Analyst
The Lindsey Group LLC
Managing Director
Chief Market Analyst
The Lindsey Group LLC
Calvin the Super Genius
By Ben Hunt, Ph.D., Salient
People think it must be fun to be a super
genius, but they don’t realize how hard it is to put up with all the idiots in
the world.
– Bill Watterson, “Calvin and Hobbes”
Here is the most fundamental idea behind game
theory, the one concept you MUST understand to be an effective game player.
Ready?
You are not a super genius, and we are
not idiots. The people you are playing with and against are just as
smart as you are. Not smarter. But just as smart. If you think that you are seeing more
deeply into a repeated-play strategic interaction (a game!) than we are, you
are wrong. And ultimately it will cost you dearly. But if
there is a mutually acceptable decision point – one that both you and we can
agree upon, full in the knowledge that you know that we know that you know
what’s going on – that’s an equilibrium. And that’s a decision or outcome or
policy that’s built to last.
Fair warning, this is an “Angry Ben” email,
brought on by the US government’s “communication policy” on Ebola, which is a
mirror image of the US government’s “communication policy” on markets and
monetary policy, which is a mirror image of the US government’s “communication
policy” on ISIS and foreign policy. We
are being told what to think about Ebola and QE and ISIS. Not
by some heavy-handed pronouncement as you might find in North Korea or some
Soviet-era Ministry, but in the kinder gentler modern way, by a Wise Man or
Woman of Science who delivers words carefully chosen for their effect in
constructing social expectations and behaviors.
The words are not lies. But they’re only
not-lies because if they were found to be lies that would be counterproductive
to the social policy goals, not because there’s any fundamental objection to
lying. The words are chosen for their truthiness,
to use Stephen Colbert’s wonderful term, not their truthfulness. The words
are chosen in order to influence us as manipulable objects, not to inform us as autonomous subjects.
It’s always for the best of intentions. It’s
always to prevent a panic or to maintain confidence or to maintain social
stability. All good and noble ends. But
it’s never a stable equilibrium. It’s never a lasting legislative or regulatory
peace. The policy always crumbles in Emperor’s New Clothes fashion because
we-the-people or we-the-market have not been brought along to make a
self-interested, committed decision.Instead the Powers That Be
– whether that’s the Fed or the CDC or the White House – take the quick and
easy path of selling us a strategy as if they were selling us a bar of soap.
This is what very smart people do when they are,
as the Brits would say, too clever by half. This is why very smart people are,
as often as not, poor game players. It’s why there aren’t many academics on the
pro poker tour. It’s why there haven’t been many law professors in the Oval
Office. This isn’t a Democrat vs. Republican thing. This isn’t a US vs. Europe
thing. It’s a mass society + technology thing. It’s a class thing. And it’s
very much the defining characteristic of the Golden Age of the Central Banker.
Am I personally worried about an Ebola outbreak
in the US? On balance … no, not at all. But don’t tell me that I’m an idiot if
I have questions about the sufficiency of the social policies
being implemented to prevent that outbreak. And make no mistake, that’s EXACTLY
what I have been told by CDC Directors and Dr. Gupta and the White House and
all the rest of the super genius, supercilious, remain-calm crew.
I am calm. I understand that a victim must be
symptomatic to be contagious. But I also understand that one man’s symptomatic
is another man’s “I’m fine”, and questioning a self-reporting immigration and
quarantine regime does not make me a know-nothing isolationist.
I am calm. I understand that the virus is not
airborne but is transmitted by “bodily fluids”. But I also understand why Rule
#1 for journalists in West Africa is pretty simple: Touch No One, and questioning the wisdom of sitting next to
a sick stranger on a flight originating from, say, Brussels does not make me a
Howard Hughes-esque nutjob.
I am calm. I understand that the US public
health and acute care infrastructure is light years ahead of what’s available
in Liberia or Nigeria. I understand that Presbyterian Hospital in Dallas is not
just one of the best health care facilities in Texas, but one of the best
hospitals in the world. But I also understand that we are all creatures of our
standard operating procedures, and what’s second nature in a hot zone will be
slow to catch on in the Birmingham, Alabama ER where my father worked for 30
years.
The mistake made by our modern leaders – in
every public sphere! – is to believe that they are operating on a deeper,
smarter, more far-seeing level of game-playing than we are. I’ve got a long
example of the levels of decision-making in the Epsilon Theory note “A Game of Sentiment“, so I won’t repeat all that here. The basic idea, though, is that by announcing a
consensus based on the Narrative authority of Science our leaders believe they are stacking the
deck for each of us to buy into that consensus as our individual first-level
decision. This can be quite effective when you’re promoting a
brand of toothpaste, where it is impossible to be proven wrong in your
consensus claims, much less so when you’re promoting a social policy, where all
it takes is one sick nurse to make the entire linguistic effort seem staged and
for effect … which of course it was. The fact
that we go along with a game – that we act AS IF we believe in the Common
Knowledge of an announced consensus – does NOT mean that we have accepted the
party line in our heart of hearts. It does NOT mean that we
are myopic game-players, unerringly led this way or that by the oh-so-clever words of the Missionaries. But that’s
how it’s been taken, to terrible effect.
I am calm. But I am angry, too. It doesn’t have
to be this way … this consensus-by-fiat style of policy leadership where we are
always only one counter-factual reveal – the sick nurse or the sick economy –
away from a breakdown in market or governmental confidence. I am angry that we
have been consistently misjudged and underestimated, treated as children to be
“educated” rather than as citizens to be trusted. I am angry that our most important
political institutions have sacrificed their most important asset – not their
credibility, but their authenticity – on the altar of political expediency,
all in a misconceived notion of what it means to lead.
And yet here we are. On the precipice of that
breakdown in confidence. A cold wind of change is starting to blow. Can you
feel it?
W. Ben Hunt, Ph.D.
Chief Risk Officer, Salient
Chief Risk Officer, Salient
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