When The Economic Record Is Broken It Is Time For A New Tune
Saxo Bank | Aug 27, 2014 03:39AM ET
It was quite interesting to read over the weekend just past the view from the Nobel Prize winning economist and NY Times columnist, Professor Paul Krugman. There is much in what he says that I can agree with and yet - true to form - the unabashed “Liberal” in the American sense of the term cannot fail to take a swipe at wealth creators.
The risk of US inflation is a myth The trouble with many independent “western” central banks is that there are so many talking heads that wish to express an opinion. This is, on occasion, a source of frustration as the capital markets usually react in an immature and nervous manner getting pulled in one direction or another by the mere utterance of an opinion. This is ridiculous, for all that really matters is what the head of the central bank has to say. Arguably the worst central bank in this regard is the most powerful - the United States Federal Reserve Bank or “Fed”. At the moment there are several voices within the Fed that vocally implore the bank to pull away from its ultra-accommodative stance as they fear that prolonged accommodation is going to unleash an inflationary whirlwind that will wreak havoc throughout the economy. Professor Krugman gets my support on this issue as he accuses this minority view of never missing a chance to beat that inflationary drum even though their warnings over the past six years have been proven wrong time and time again.
It is clear that there has been no galloping surge of inflation borne from the ultra-low levels of monetary accommodation and yet as Krugman suggests, it is the persistence of that warning that is more intriguing as against the fact that they are simply wrong. The worst offender is Professor Charles Plosser of the Philadelphia Fed. He is currently leading the anti-flation charge. Just as he has been every year since 2008. One wonders how many times a distinguished academic has to be wrong before they will question if their model and its econometric parameters, are out of kilter with reality? From my own writings on economies and markets I have made my fair share of mistakes, however, I like to think I can retreat and revaluate a specific situation. The only conclusion that can be drawn when one sees extremely bright individuals continually howling at the setting sun (even they know by experience it will set and return the next day) is that there are other motivations at work. Am I wrong? Professor Krugman would tar me with the same brush as I am a champion of low personal and corporate taxation. He claims that there is no evidence that cutting tax rates on the wealthy boosts the economy. However, I can cite evidence that proves high taxes at a personal and corporate level certainly fail to boost an economy. If one wants an example look at the UK in the mid to late 1970s or right now look at the pitiful state of the French economy. What is annoying is that a liberal such as Professor Krugman could not resist taking a swipe at those thinkers that value free enterprise and genuine wealth creation through inspiration over big government and the dead hand of state interference. There is no shame in forming an economic opinion based on the broad thrust of an Ayn Rand novel. One only has to read “The Fountainhead” or “Atlas Shrugged” to appreciate the danger of the mediocre forever leaning on the achievements of the creative and talented. Her work expresses the advocacy of reason, individualism, capitalism, and the failures of governmental coercion. Economics of the glib versus the open mind It just seems unworthy of a Nobel Laureate to accuse one group of economists of being obsessive in one aspect of the science and commit the exact same sin albeit in any realm. The reality of the modern market economy is that the extremes of Laissez Faire and Statist Control are both as wrong as one another. The government does have a role to play in framing the laws of the land and overseeing issues of national security and providing essential, public/social goods and services.
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However, that is where it should end. Similarly the extreme free market thinkers that advocate almost no government are just as wrong for that way lies loose and ill-defined regulation which will create chaos.
Any sensible economist or market participant needs to regularly check and recalibrate their intellectual compass. They are obliged to respect that data placed in front of them that has come from a reliable source. Hopefully, we can all show enough maturity and honesty both in public and private to be swayed by a compelling argument backed with credible evidence and change our mind when it is appropriate s against fashionable to do so rather than be welded to a long-held yet discredited attitude
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