The One Lesson Economics Has to Teach

by | Jul 7, 2022

Imagine, for a minute, sitting in a classroom. 

Not just any classroom. But a cavernous auditorium style room. The type that college freshmen at a big state school pack into for entry level classes. 

You know, classes like Chem 101, Econ 101, Calculus — big ones like that. 

You’re here to watch an engineer give a lesson on how to disarm a nuclear bomb. Now, I have no idea why you decided to show up but here you are sitting in the auditorium watching some old guy at the top of his field tinker with the guts of a thermonuclear warhead. 

The room is packed and dead quiet, aside from the sound of pneumatic wrenches and drills as Mr. Engineer presses on. 

Every now and then he pops his head up to offer comments on his progress. But, just now, you hear him mutter a curse to himself while a little smoke rises from his position behind the bomb. 

A quiet, steady beep can now be heard and the audience gasps. 

Hearing your collective concern, he pops his head up one last time. And with a flat expression on his face says calmly, “I think I now understand how little I know about what makes this thing explode.” 

As it turns out, Mr. Engineer wasn’t the teacher. He was the student. It was the bomb that was the teacher. 

You are just here to watch. 

And based on something Jerome Powell just said, it would seem he just realized he’s been the student all along… 

Knowing That You Don’t Know 

After a lifetime in class, Jerome Powell may finally have learned the one lesson economics has to teach. 

That lesson is, as Friedrich Hayek — or, as I like to say, the free man’s economist – once said, “the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” 

In other words, the economy is the teacher, not the topic. And her core lesson is “you don’t know me.” 

Well, just a few days ago Jerome Powell popped his head up from behind the gears of the American economy and said with a straight face “I think we now understand better how little we understand about inflation.” 

He wasn’t talking bombs, of course. But he was talking about the Fed’s ability to manage explosions and implosions of money. For over a century, the raison d’etre of the Federal Reserve has been to tinker with the U.S. economy as though they know what makes her tick. 

But like mystical goddess Isis, the economy’s inner workings are veiled, subtle, and infinite. You can’t understand her with an engineering mindset. You can only appreciate that her process involves the hundreds of choices billions of individuals make each day. 

They can no more explain, much less manipulate, the actions of every American than they can explain the process of how thoughts float to the surface of my mind or from whence they arose.

That process doesn’t fit in a model. It doesn’t respond well to control. 

Look, I commend Powell for his brief bout of epistemic humility. However, the unfortunate fact is that he learned using a live bomb. The inflationary smoke is rising. And Powell’s response to our collective gasp is to pop his head out from behind the economic bomb he just armed to utter the academic equivalent of “whoopsie.” 

And it’s not like they’re going to stop. 

They still plan on hiking rates and selling bonds to bring inflation down. When those actions implode growth, they will again explode the money supply thinking that’s what the economy wants. 

But her lesson to the Fed is the same — you don’t know me. 

At least we get to watch.

Think Free. Be Free. 

p.s. Tomorrow, July 8th at 4p.m. Eastern, I’m going live on Zoom to screen for stocks that look like they want to move. I’ll then run them through my analysis of the processes involved. Sign up here if you’d like a reminder right before I go live.

By the end of the event, you’ll have a shortlist of stocks to watch. Who knows? You may want to act on some of those stocks right away! We’ll see…because the process is live. And only then can I show you what the market wants.

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