‘We really can’t forecast all that well. We pretend that we can but we can’t. And markets do really weird things sometimes because they react to the way people behave, and sometimes people are a little screwy.‘
Alan Greenspan, speaking this week on The Daily Show.
‘Jobs Report Leaves Fed in Doubt,’ was a big headline yesterday morning.
Later in the day came this:
‘Dow down 54 on jobs concern.‘
What is the Federal Reserve in doubt about? Whether to taper or not to taper; that is the question.
And why should a jobs report make any difference?
Oh, dear reader, where have you been? Don’t you know that everyone now sits on the edge of his seat wondering when and how the Federal Reserve will actually back off from its massive QE (quantitative easing) program? And don’t you know the future of civilisation hangs in the balance?
Ah…on that point, we have a position…a thought…a reaction. Civilisation hangs in the balance…but not in the way you think.
We have been trying to introduce a new way of looking at civilisation. In short, we’ve tried to make it more civilised.
What is the difference between a civilised community and a barbaric one? We have introduced a simple test: the civilised community relies mostly on cooperation and consent. The uncivilised community depends heavily on force and violence.
A French historian first introduced the word ‘civilisation’ less than 300 years ago. Since then there has been much argument about what it actually means. We enter the fray gingerly, but sure of ourselves. It only makes sense on our terms…and no others: a civilised community is peaceful; a barbaric one is not.
‘Okay Bill,’ you may be saying to yourself. ‘I’ll give you that one…I guess…but what the hell difference does it make? What has it got to do with the jobs report?’
Good questions. Glad you asked.
We know from bitter experience that trying to force economies to do what you want is a thankless task. Markets are fundamentally based on free exchange, cooperation, trust and trade. Force them in one direction or another and you are just asking for trouble.
As Alan Greenspan described this week, in a TV interview, people are a little ‘screwy‘ from time to time. Which means, they don’t necessarily go along with your central planning, no matter how good you think it is.
And yet, economists insist that if they are allowed to monkey with an economy they can make it better. This is occasionally true. Said occasion is when they have already messed it up. Then, by withdrawing some of their planning and programs, they may actually allow it to recover.
Otherwise, there is no example in history where force has been successfully applied to economies.
But that doesn’t stop the PhDs from trying. The jobs report showed about 60,000 jobs missing…that is, fewer than the same economists had projected. Now, the erring economists will most likely compound their error…by continuing to try to force the economy to do their bidding: increase jobs…and raise prices.
If they really wanted to increase employment, that would be easy enough. They would encourage the feds to withdraw some of the laws that bully employers (health insurance…EEOC threats…overtime etc) or the laws that make it easy for employees to remain unemployed (disability…unemployment compensation…food stamps…). As far as we know, those things are not on the table.
What is on the table is more QE.
With regards to that, the poles of possibility are these: 1. QE does nothing important. If this were so, there would be no reason to keep it. 2. QE is essential to the economy. If this were so, they can’t get rid of it…no matter what the jobs report says.
Most likely, QE lies somewhere in between…perhaps lost in the horse-latitudes… It probably has little effect on the real economy. That is why the jobs report is so disappointing. But it probably has a great effect on the financial economy. That’s why the Dow sets new record highs almost every session.
The Federal Reserve is probably stuck with QE. Were it to stop, the stock market and the wealth effect that the PhDs have been aiming for would turn quickly into a poverty effect. Janet Yellen couldn’t stand it.
She believes the Fed should use all its available weapons to force the economy to do what it wants. She won’t be able to stand by, dagger in hand, when the market turns its back on her. Instead, she will stab.
And the Fed that lived by the sword of QE…will probably die by it too.
for Markets and Money