By Michael Every of Rabobank
President Trump was impeached by the House of Representatives for an historic second time yesterday for “inciting an insurrection”; and then Mitch McConnell announced he won’t allow a Senate trial to occur until after 20 January when Trump has left office. So nearly a week remains. We have already seen a belated presidential video condemning mob violence; the cancellation of a planned high level official visit to Taiwan; a trio of Chinese tech firms freed from the risk of being delisted in the US; and a region-wide ban on cotton and tomatoes from Xinjiang province over forced labour allegations. (The UK and Canada acted similarly, but more mildly this week over the same issue.)
Yield-curve confusion continues in an unrelated but equally sound-and-fury fashion. US 10s were over 1.18% on Tuesday but then dropped back to nearly 1.07% despite a US inflation print marginally stronger than expected, with energy prices up sharply. The Fed’s Beige Book also noted almost all districts reporting modest price increases - but input prices outpaced those of selling prices, compressing firms’ profit margins.
Indeed, the NFIB survey this week said: “This month’s drop in small business optimism is historically very large, and most of the decline was due to the outlook of sales and business conditions in 2021. Small businesses are concerned about potential new economic policy in the new administration and the increased spread of COVID-19 that is causing renewed government-mandated business closures across the nation.”
Reflation this isn’t. Helpfully then, the Fed’s Brainard (perhaps auditioning for Treasury Secretary in 2024) underlined now is not the time to be thinking about Fed tapering.
Sticking with this monetary-fiscal policy crossover, yesterday the BOE released an internal independent report that both praised and criticized its own here-to-stay QE, notably in that it: “…remains a poorly understood monetary policy tool for much of the public and for some its use has been contentious. In particular, there remain strong views about QE’s potential distributional side effects.” The report adds: “…while QE supports asset prices, it also supports jobs and wages…the prevailing consensus [is] that looser monetary policy reduces inequality by supporting employment….The Bank has struggled to persuade external audiences of its message on distributional effects.”
Why? Well, what have asset prices done in recent years (and are doing now)? And what have wages done? Yes, pre-Covid one could say that unemployment was low. But ordinary people can see that they have low-wage ‘gig’ jobs on offer as they watch as the houses and stocks they *don’t* own make parts of the populace vastly wealthier (and the narrower the demographic, the larger the wealth gain).
The report concludes: “…greater staff-level contact --supported by press office-- with journalists and external stakeholders around the publication of key analysis could help the Bank to build their understanding. It could also start a constructive two-way dialogue, before entrenched positions start to build distrust.” In short, let’s co-opt the journalists and publishers, who don’t understand economics anyway. That will solve the problem!
On a related note, George Orwell’s ‘1984’ is the #2 best-selling book on Amazon this week. Why the sudden surge in interest? Is it being bought as a warning - or because people are worried if you don’t own a physical copy then one day it might be unavailable? I had already typed this out when a friend tried to buy the *Kindle* version from Amazon and was told it would only be available on…6 June 2021: maybe the internet is full? “He loved Big Bezos.”
Orwell’s earlier classic, offered as a bundle by the way, was ‘Animal Farm’. Most of us probably read that when we were young. Most don’t get the analogy to Lenin (Old Major), Trotsky (Snowball), and Stalin (Napoleon). However, there are still things one can learn even if well-versed in “All animals are equal, but some animals are more equal than others”, as fresh in 2021 as 1945.
Did you know the book was turned down by FOUR publishers before finally being accepted? Orwell wrote a preface not printed until 1972 in which he says he wasn’t surprised as:
“If publishers and editors exert themselves to keep certain topics out of print, it is not because they are frightened of prosecution, but because they are frightened of public opinion. In this country intellectual cowardice is the worst enemy a writer or journalist has to face, and that fact does not seem to me to have had the discussion it deserves. At this moment what is demanded by the prevailing orthodoxy is an uncritical admiration of Soviet Russia. Everyone knows this, nearly everyone acts on it. Any serious criticism of the Soviet regime, any disclosure of facts which the Soviet government would prefer to keep hidden, is next door to unprintable.”
One notable ‘Animal Farm’ rejection was from T.S. Eliot, who said the story did not work because
“…your pigs are far more intelligent than the other animals, and therefore the best qualified to run the farm – in fact, there couldn’t have been an Animal Farm at all without them: so that what was needed (someone might argue), was not more communism but more public-spirited pigs.”
That elitist attitude tracing back to Plato echoes down the ages: keep the masses and their bad decisions and bad taste far away, and let “experts” run things. Yet as thinkers like Taleb and Goodhart argue, so-called “expertise” and “intelligence” is over-rated and over-rewarded. If we talk about QE, how can one disagree? (And Gramsci says the real winners just write their own rules to serve them and then provide employment for useful-idiot high-priests to prop that system up.)
Importantly, technocrats also overlook the wisdom of the crowds in things like guessing the weight of an ox, etc.; in the same way, thanks to QE, they overlook that markets no longer have a true pricing function, removing their sole *useful* reason for existing.
As with that ox, much of the technocratic world seems immune to good old-fashioned common sense, for which the working class is required to educate them. In ‘1984’ the 85% of the population that are ‘proles’ ”caring little about anything but home and family, neighbour quarrels, films, football, beer, lottery tickets, and other such bread and circuses" are, like the animals, the only ones who are free.
One can interpret that to mean they are harmless, as O’Brien of the Inner Party does; or that they are the hope for revolution, as Winston does. Or perhaps they are just intellectually resistant to the war-is-peace nonsense the better-educated Party members continually ram down each other’s throats to survive in the cut-throat world of their false reality. In my experience of growing up in a working-class town, put a cab driver alongside a BOE agent trying to explain why QE is helping him with inequality and see who wins the debate – or the fight.
So here we are, somewhere between ‘Four Legs Good, Two Legs Baaad’ and the hope for “more public-spirited pigs”; and that as piggish markets bleat ‘Go long good, go short baaaaad.’
Let’s all now go and listen to Pink Floyd’s ‘Animals’: “Big man, pig man, ha ha charade you are.”