I know what y’all are thinking. You’re thinking how did that Rob Smith guy get to be so smart! Why do chicks dig him so? Did he really score 6 touchdowns and run and pass for over 1,000 yards against Clemson his senior year in college? Well folks, I could give you the answers to all these questions, but I am really modest and hate bringing attention to myself.
Undoubtedly you read my most recent article about the futility of relying on associations of experts, such as the Federal Reserve Board. On the very day that my article was published the market dropped 1,000 points because the Fed acted exactly the way I said bodies of experts inherently act. The Fed made my case for me. Fed Chair Jerome Powell called for a faster pace of Fed Funds rate increases. This interference into the market place caused millions of people across the country, indeed the world, to lose a boat load of money. Not only am I always right about everything, but I am like Nostradamus, I have a habit of predicting the future. I told you the Fed was prone to do something stupid, and sure enough they did!
Actually, if one has just a wee bit of common sense and a handful of life experiences, it is pretty easy to predict the future. As stated last week, institutions of experts become intoxicated with their Delphic powers. Having thin blooded sycophants suck up to them only increases their folly. They inevitably become corrupt and monolithic in thinking, and then end up being wrong about most everything; whereas, a true “market” of many individuals voting with their own property generally makes the right decisions about everything.
The Fed proclaimed that it will be raising rates to slow the economy down under the false impression the economy is growing too fast and causing inflation. There are so many things wrong with this “reasoning,” I hardly know where to start. First, its analysis of economic strength is based on government accounting and statistic gathering which is often flawed, outdated and insulting to those who understand arithmetic. Two, prices often rise and fall for a plethora of reasons. If oranges rise in prices, people might switch to lower priced peaches, government bean counters cannot accurately measure all of the vagaries of a brisk and ever-changing market adapting to price fluctuations. These statistical formulas are not “all that and a bag of chips.” Take the CPI, it is a government created numerical construct that often measures items of little importance and mis-measures items of much greater importance. Three, real inflation is caused by a devaluation of the currency. The dollar is but worth a smidgen of what it was before “experts” decoupled it from the gold standard in 1971. With all this said, the huge fallacy on display in the Fed’s groupthink reasoning is this: how is making people poorer good for the economy? If a so-called strong economy is bad, then wouldn’t logic dictate that a weak economy is good? In the Fed’s mind, the porridge is either too hot or too cold and only they the great sages of monetary and fiscal wisdom can guide the economy to its perfect equilibrium. Poppycock!
The Fed members, in groupthink harmony, all subscribe to a belief that a weaker economy keeps prices from rising, but that of course is 180 degrees from the truth. A strong economy puts downward pressure on prices as enhanced productivity and competition squeezes prices lower. Moreover, profits derived from a strong economy create additional capital which creates even greater productivity. All growth and progress is created from the supply of capital which is created through profits. Think of shoveling coal into a locomotive engine. The coal is capital and the engine is the economy. Do you want a slow, weak train that has no capacity to carry additional railcars, or do you want a 200-car train going 80 mph? Some, who think like me will say that the Fed tinkering around with interest rates has no real effect on the economy, that interest rates will find their natural equilibrium despite the Fed’s actions. Whatever the merits of this argument, as I write this, the Dow has lost 2,000 points since Powell’s announcement. I have lost a ton of money due to the Fed interfering into the status quo. Anytime an outside force intervenes in decisions usually made by market forces, damage occurs. I am much less likely to put capital to use towards productive ends because I now have less of it. I say the Fed F-ed up, just like I predicted they are prone to do.
Due to my extreme modesty and Dudley Do-Right personality, I can’t take credit for always being right and able to predict the future. Like little George Washington, I cannot tell a lie! I have a secret weapon that makes it appear I can predict the future, but it is really an infallible cheat sheet. You see, I understand the Immutable Qualities of Human Nature. It is like having a crystal ball. In public policy and economics certain things are true and lead to inevitable results. I may not know the exact date that certain events will occur, but I know with certainty they will occur.
Associations of experts will dictate policy that enhances their prestige and power. Seldom does such an organization issue a one paragraph white paper stating “ Y’all don’t really need our help, it’s best if we do nothing. You folks are just as smart as we are and quite capable of making decisions for yourself.” That NEVER happens.
Perhaps in the future, I will explain other maxims where human nature and public policy intertwine to create a predictable result. For example, if you make it easier for criminals to commit crimes, you will have much more crime. See Defund the Police. If you tax something, you create less of what is being taxed. See 1990 luxury tax that ruined several industries and put tens of thousands out of work. In order for any economic enterprise to operate in an effective manner, those running such enterprise must have skin in the game. See Twitter Board of Directors who owned practically no stock. People who spend other people’s money do so to bring favor to themselves and are horrible stewards of the resources they have been entrusted. See United States Congress. One can bet if the United States was organized as a stock company and everyone voted their shares, spending would be 25% of what it is now.
I am glad I “fessed up” and told everyone about my cheat sheet. Being right all the time can be a real burden. My doorbell rings all the time from people who see me as some sort of “always right” Dalai Lama, wanting me to unlock the keys to the universe for them. It gets old and many of these seekers smell bad.