Historians will look back on this period with awe and wonder. Somehow, not one but three generations of economists and policy-makers convinced themselves of things that couldn’t be true for a minute.
“Not enough demand,” they say, in penetrating analysis of today’s lacklustre growth rates.
“We need to provide demand,” they add, as if demand were like oranges. You just back up the truck in Florida and deliver them to New York. Easy peasy.
But it almost seems as if the whole world were created just so its Creator could have a good laugh at simpleminded economists.
“Look at them now,” we thought we heard a stentorian voice coming from the heavens. “They’re adding demand that doesn’t exist so that people will make products for people who can’t pay for them. Hardy har har!”
We only bring this up because the newspapers are beginning to opine on Ben Bernanke’s ‘legacy’. To make a long story short, they have forgotten that when the ‘merde‘ hit the fan in ’08, Ben Bernanke had no idea what was happening.
They overlook that he thought the mortgage bubble was harmless and that the economy would continue to perform nicely even as real estate prices sank. And they’re willing to ignore the fact that he has presided over the weakest recovery in history.
Instead, they see silver linings and miss the clouds all together. The most popular summation of Bernanke’s time at the head of the Fed was that “he saved us from another depression”.
No one seems to care – at least at this stage in the process – that he did it by causing an even worse problem. And that his experiments have led to 13% real unemployment, negative real growth, negative real interest rates, and an extra $4trn in reserves in the banking system, which will have to be reckoned with sooner or later.
These numbers are probably a surprise to most readers. The popular reading of unemployment, for example, has it at around 7%, not 13%. But you would be wrong if you think that only 7% of the potential workforce lack jobs.
Nope, that’s not the way it works. Instead, if you lose your job and are unable to find a new one, then you are ‘discouraged,’ and they pluck you out of the labour pool. Put back in the people who have given up, and the proper unemployment figure is 13%.
We just completed a report for our Family Office members. It showed that much of what we take for granted as GDP growth over the last 30 years didn’t really happen. It was phantom growth caused by distorting the measurement of inflation and output.
It’s impossible to know exactly how much real growth there was (it depends on your assumptions). But take out all the tricks and distortions and real wealth evolution in terms of GDP per person is certainly negative for the last ten years and probably negative for the whole period, from the day Ronald Reagan entered the White House to yesterday.
And if that is so, things that depend on output – debt and equity – are probably greatly overpriced too. Much of the demand for goods and services since 1980 has only been made possible by expanding debt, something that can’t go on forever.
The next bear market will sort it out. Asset prices will go down hard. Standards of living, buoyed by a 30-year tide of rising debt, will sink. That will be Mr Bernanke’s real legacy.[xyz_lbx_custom_shortcode id=5]