The Great Grunge?

The IMF and World Bank sponsored a great gathering of policymaking economists for a week of discussions. I can only imagine the statistics and regressions that must have been traded back and forth in lieu of actual discussions about how true capitalism needs no overlorded purveyor, or why, despite the incessant heavy hand of every central bank and central banker, the world economy may have been already toppled once more. It may not have been a true worm hole in the manner of hard physical reality, but you can imagine how some of the same people that have going to these kinds of affairs over and over are just replaying the same concerns with even the same kind of language. It may be 2015, but how much has really changed?

That’s a problem in the real world of the real economy because change is growth, health and satisfaction. It is sclerosis and stasis that are the enemy of economic and financial progress, so there should have been some great appreciation for why the world still debates what the Fed will or won’t do; there, of course, wasn’t. Somehow, in all the fine academic stupor of exotic settings, no one will explain how we all got here, and, worse, remain here.

And Gary D. Cohn, the president of Goldman Sachs, said at a panel discussion on Saturday that if you had just awakened from a yearslong slumber and had to make a decision about raising rates, you would most likely choose not to do so.


“We have a global economic growth problem,” Mr. Cohn said.

That’s truly the point, as you might have been asleep a year or eight years and it would not truly matter – we’re still here. While there were few interesting-sounding panel discussions, there should have been several days, maybe even the whole works, dedicated to at least reminiscing how “they” came up with trillions upon trillions upon trillions (so much that billions no longer seem important) in financial units of all kinds and still “we have a global economic growth problem.” By count of that simple reckoning, there is no global growth problem apart from the monetarism that so devastatingly and clearly coincides.

Perhaps it is equally conspiring that this “recovery” age has yet received no “great” moniker. If Ben Bernanke is to be believed, then it should have been universally accepted by now, all over the world, as the Great Rescue. If Janet Yellen holds any sway, perhaps the Great Next Year. From China, maybe the Great Exports Weren’t As Bad As Feared. Whatever, the fact that no name has stood up to the current age is constructive in at least how it suggests that there is somehow nothing yet achieved; the most that can still be hoped is that our future remains unwritten.

Despite a high level of drama in nearly every corner of the economic globe, we have yet to settle on a catchy description for this particular period in history. We have had the Great Financial Crisis, or the Great Recession, following closely behind, and directly related to, the Great Moderation (itself only a slight change from the Great Inflation). While the Great Financial Crisis continues to roll on, particularly in Europe, there are stains and elements still evident elsewhere. Looking at the bigger picture, however, all of these “Greats” could easily fall within the Great Relearning.

I wrote that in April 2013, being reminded by events then of Tom Wolfe’s brilliant 1987 essay The Great Relearning. Published in the American Spectator, Mr. Wolfe found himself in the late 1960’s exploring the hippie utopias that had sprung up in California; where rules of civilization were discarded by youthful and naïve “progression.”  That it might apply yet again shows how nothing has changed.

In 1968, in San Francisco, I came across a curious footnote to the psychedelic movement. At the Haight Ashbury Free Clinic there were doctors who were treating diseases no living doctor had ever encountered before, diseases that had disappeared so long ago they had never even picked up Latin names, diseases such as the mange, the grunge, the itch, the twitch, the thrush, the scroff, the rot. And how was it that they had now returned? It had to do with the fact that thousands of young men and women had migrated to San Francisco to live communally in what I think history will record as one of the most extraordinary religious experiments of all time.

No more civilized convention, no private property and certainly a banishment of traditional wisdom, all to produce a fetid brew of medieval ill-health. In searching for idealistic and supreme “equality”, those poor souls had recreated the Dark Ages (in more ways than one, as Wolfe detailed).

And so it is with the current period in economic history, where central bankers do what it is they always do and find themselves the very next year engaging in panel discussions about why that didn’t work (though being quite careful as to express it in true passivity), then dedicating to nothing more than to do it all over again – as if history were not conclusive on any of the relevant points. It actually matters in a cruel sense how this idolatry of monetary control began itself at the same time and in the same manner as the communes of the 1960’s.  The birth of the technocracy in the 1960’s, even if by theory alone at first, was in every way the casting of past associations as harmful and “unequal.” That starts with, of course, using raw monetary means as a matter of turning out an organic economic advance; using negative and highly disruptive redistribution and expecting a positive outcome every time. Discipline and creative destruction, the hard-won lessons of the past, hold no place in the monetary central planning text book.

Worse, it has become painfully clear that these “experts”, the “best and brightest” monetary planning has to offer, don’t even fully comprehend that which they seek to charge. “They” saw the Asian flu in 1998 and reacted monetarily, guiding only by academic theory rather than past history; to which nation after nation has supposedly “learned” not to peg to the dollar and to accumulate as massive a pile of “reserves” as possible. It does not matter the composition because the monetary utopia consists purely of generic and bland concepts – to these “experts”, reserves are the same whether UST bonds or term forward swaps paired with longer dated currency swaptions. It was once completely understood that financial money was a problem, and the massive, wholesale “reserve” piles that exist today seem, as Tom Wolfe noted almost two decades ago, determined to prove past convention right yet again.

For all that was fixed about the Asian flu, the IMF, World Bank and their sordid, institutional offspring are perplexed:

“We have never seen something like this,” said Hung Tran, a senior executive at the Institute of International Finance, a trade group for global banks. Mr. Tran said that he was expecting net outflows from emerging markets to be around $800 billion for this year and next — by far the largest amount since institutions began investing in these markets in the late 1980s.

Everywhere you look in global banking, individual institutions are generously announcing their great exit, time and again, aimed squarely within the world of FICC (fixed income, commodities, currencies) – the very modern “dollar” itself. And the IMF, World Bank and various organizations of highly credentialed economists wait for, “At the root of the debate has been whether the Federal Reserve’s decision last month to hold interest rates near zero has increased investor confidence in emerging markets or hurt it.”

That makes sense in a bastardized way, across multiple levels. If you think the central bank holds grand, mystical powers you would attribute almost all trends, good and bad (again, only passively), to those efforts. Not only that, given the buildup of central banks as the gods of economy, the exploratory turn at insufficiency that should be far reaching and exhaustively probing is instead cut short. They will never look to find the true nature of any economic difficulty that isn’t embedded instead within the dominant, newsome paradigm of central banks at the positive center. When you have reduced the world’s economy in such terms, the singular wield of a monetary hammer makes everything look like “reserves.”

The Great Relearning if it is to take place in this context will reveal to the surprise of orthodox economists what was once thoroughly unquestioned – the central bank is not the center of the economy, not even all that close to it. But in that conception economists no longer play the “hero”, no Time Magazine covers and fawning press coverage. If money itself is at most a tool to aid in the business of business, the economist fades back into the uninteresting background.  But we could again appreciate the simple and consistent logic of the stubborn decay, where introducing broad financial variables in even in small doses is bound to produce at least as much deficiency as benefit; large doses supply economic ills once thought as dead and buried as “the grunge.”

We have been conditioned to believe that full-blown depression is impossible by the same people that hold conference after conference describing, without admitting or even recognizing, a global depression. We can dance around the semantics, but another global recession coming one after another (2012), following again a huge contraction, all without any recovery by reasonable imagination, cannot be described in any other manner. Ben Bernanke says the US economy is 8.9% above its prior peak without figuring how that is truly awful and “criminal” in its own right and goes a long way to explaining why the labor market, despite an increase of 18 million in potential laborers, is woefully stagnant all these eight years. Even by that most charitable description, the US economy is for all practical purposes smaller than it was in 2007, and smaller than it was in 2000.

It only scales down from there moving through Europe, Japan and the rest. Truly free markets are supposed to be the very engine that reconciles that putrid economic existence with Bernanke’s claims and even all his monetary efforts. In that light, the $800 billion in outflows, the “never seen something like this before”, actually, too, makes sense. The market, and the once-conjoined eurodollar banking system that had pushed central bankers to think they were the center of the economic universe, is by virtue of these scales effecting that Great Relearning whether they want it or not. Discipline and actual value stand upon the pivot, and the world is starting to realize how those might square with the decomposing dystopia of the current “recovery.”