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 Fed in doubt about? 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 everyone now sits on the edge of his seat wondering when and how the Fed will back off from its massive QE program? And don’t you know the future of civilization hangs in the balance?
On that point, we have a position… a thought… a reaction. Civilization hangs in the balance, but not in the way you think.
Asking for Trouble
We have been trying to introduce a new way of looking at civilization. In short, we’ve tried to make it more civilized.
What is the difference between a civilized community and a barbaric one? We have introduced a simple test. The civilized community relies mostly on cooperation and consent. The uncivilized community depends heavily on force and violence.
A French historian first introduced the word “civilization” less than 300 years ago. Since then there has been much argument about what it means. We enter the fray gingerly, but sure of ourselves. It only makes sense on our terms. A civilized 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 an interview with John Stewart on “The Daily Show,” 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.
But still economists insist that, if they are allowed to monkey around with it, they can make an economy better. This is occasionally true. Said occasion is usually when they have already messed it up. By withdrawing some of their planning and programs, they may allow it to recover.
Otherwise, there is no example in history where force has been successfully applied to economics.
But that doesn’t stop the PhDs from trying. The jobs report showed about 60,000 jobs missing – fewer jobs than 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 – force up the rate of consumer price increases and force down the number of Americans out of work.
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 some of the schemes that make it easy for potential employees to remain unemployed (disability… unemployment benefits… 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 QE, the poles of possibility are as follows:
- QE does nothing important. If this were so, there would be no reason to keep it.
- QE is essential to the economy. If this were so, they couldn’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 Fed is probably stuck with QE. Were it to stop, the stock market would likely tumble and the “wealth effect” the PhDs have been aiming for would quickly turn 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 she wants it to do. 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, which has lived by the sword of QE, will probably die by it too.