Men in the city are numbers on a speadsheet until elites lose control. Sabermetrics revolutionized baseball, econometrics rule macro-world, trading algos cue computer buying and selling, and even the Sexual Marketplace (SMP) is collated courtesy of online dating specs: height, weight, BMI, income, hip-waste ratios so on and so forth. Your Sexual Marketplace Value (SMV) may one day be emblazoned across a social media banner on Facebook, Tinder or some future equivalent. Is it any surprise that the prevailing ethos of our time maintains that if it cannot be measured, it does not exist. Yet the world turns on the immeasurable and the intangible, especially when it comes to human beings.
The prevailing ethos of our time maintains that if it cannot be measured, it does not exist.
There is percolating tension on this subject in economic discourse where quantitative analysis is sacrosanct. Human economic behavior is neatly quantified into categories like “aggregate demand,” the “propensity to spend” or “consumer spending.” Additional metrics run the gamut: Consumer Price Index (CPI), Debt-to-GDP ratios, the Dollar Index (DXY) (dollars measured against a basket of currencies), Foreign Exchange (FX) markets, Twenty Year+ Treasury Bond ETF (TLT) on and on and on. In each case, the Lords of Finance proclaim these indices and a smorgasbord of instruments carefully calibrate human action. Micro and macro shifts can be approximated, anticipated, and manipulated with relative certainty while Animal Spirits are dismissed as marginal blips or ghosts in the machine.
In recent months inflation has become a controversial topic much to the chagrin of Keynesian absolutists like Nobel Prize winning economist Paul Krugman. Some believe prices are moving erratically rather than linearly, that inflation is “sticky” (see video above) or unpredictable while true believers like Krugman assert the inflationary boogeyman has been slain. The self-appointed uber-authority on Keynesian certainty penned a NYT editorial to proudly double down on the supremacy of metrics over man. As one does, he took to Twitter to instruct and admonish the benighted plebes whining about cost-of-living spikes in rents or steepening credit card APRs. As is typical of the Gerontocracy, Krugman demeaned the skeptics on Twitter branding them the “disinflation deniers.” (Sounds vaguely like “basket of deplorables,” “the antivaxxers,” or “climate skeptics”)
True believers like Krugman assert the inflationary boogeyman has been slain.
The masses simply do not comprehend inflation is the problem according to Krugman. "The question of what’s happening to inflation is, or should be, a purely technical issue," Krugman wrote. The ill-informed do not parse elastic and inelastic demand the way reliable economic indices do. Fortunately, the Keynesians have adeptly excluded pesky volatile inputs like housing, gas or car payments that may frustrate Keynesian certainty. And with good reason, an airtight argument – what the Fed calls “data dependent” – requires parsimonious precision, music to the ears of academics the world over. For any aspiring professors, remember to cautiously parameterize your models to exclude contradictory data thereby disarming potential counterarguments before they can be fired. If refutations arise, rinse and repeat the process until opponents are dismissed for using exogenous data. Checkmate.
Moneyball Misses
No doubt NFL scouts felt the same certainty at the 2000 NFL Combine. That day coaching staffs witnessed one of the worst combine performance for any quarterback in the history of the combine. It was an open-and-shut-case, a statistical slam dunk. Predictably, most teams passed on Thomas Edward Patrick Brady Jr. that day. Moneyball reigned. Seven championship rings, five MVPs, and nine trips to the Super Bowl later the football world changed forever. It was a small miss, a one-off, one that should not deter quants and statisticians or their models one bit, or should it?
Small misses can be disastrous, especially if seemingly minor errors compound overtime, something the high minds of finance have missed for the bulk of the Zero-Interest-Rate-Policy (ZIRP) era and before. For years Subject Matter Experts (SMEs) of the Gerontocracy have told us that America’s economy is strong and getting stronger, that unemployment is historically low, that global supply chains were adaptable and antifragile, that the global financial system is well-capitalized and sovereign debt, especially US debt, is manageable, even beneficial (read here). They told us another financial crisis would not be seen in our lifetimes and whatever happened authorities were well prepared to weather the storm. Were they right?
Consensus says they were right. After all, public and private debts have piled high and higher without noticeable disorder. Despite hiccups during the Pandemic, so-called reshoring or "friend-shoring" quickly ameliorated supply chain disruptions. As Goldberg and Reed put it: "global network model(s) indicate that global supply chains alleviated the pandemic-induced-contraction." Leaks in the financial system were also quickly plugged: the Reverse Repo Crisis in March 2020, the UK Gilt meltdown in 2022, or the 48-hour collapse of Silicon Valley Bank (SVB) were stopped dead-in-their-tracks. All is under control, end of story. Skeptics are mocked as doomers, perma-bears, or economic illiterates.
Such derision leaves average folks whose lived experienced is the opposite of what the experts say flummoxed. Those witnessing gut wrenching declines in standard of living feel low, dismissed and increasingly angry. If rents, grocery bills, car payments, tuition costs, and aisles of everyday items are skyrocketing in price is that not inflation? Further, we ask, if public debts sky as interest expense soars surely that means fiscal trouble for governments (as it would individuals), and since shit rolls downhill, surely that spells trouble for taxpayers? Such straight forward thinking is rebuked by authorities who arrogantly remind us that we should leave complex issues to the professionals. Move on, “these are not the droids your looking for.”
Symptoms of Sri Lanka
Cognitive dissonance within the Gerontocracy has become dangerous. The British Historian Henry Thomas Buckle told us: “When the interval of the intellectual classes and the practical classes is too great the former will possess no influence and the latter will reap no benefits.” He might have said when the privileged and powerful lose touch with reality and disaster strikes, shit rolls up hill as well as down. Once robust systems in agriculture, energy, infrastructure, education etc. have atrophied after decades of neglect so much so Western elites have forgotten the basic principles of governance: to protect, to shelter, and to feed the population. If these obligations are violated governments fall, and quickly as the Rajapaska Dynasty discovered in Sri Lanka.
When elites lose touch with reality and disaster strikes, shit rolls up hill as well as down.
The collapse of President Gotabaya Rajapaksa’s government prefigures what is to come. Like the Krugmanites in macro-world or the Progressives on the right side of history, Rajapaksa fashioned himself a progressive technocrat, a leader of Viyathmaga, a self-described movement to empower the “nascent potential of the professionals, academics and entrepreneurs to effectively influence the moral and material development of Sri Lanka.” Their aim was to remake Sri Lanka in a new, progressive image, to virtue signal like the climate doomers of the World Economic Forum (WEF). Rajapaksa’s agenda catastrophically goofed on a simple issue – organic farming.
Banning synthetic fertilizer became the centerfold of Viyathmaga. Rajapaksa’s variegated committees promised millions of home gardens, a smooth transition to biofertilizer, and to aggressively phase out synthetic fertilizers. He turned to academics rather than practitioners to implement top-down reforms and excluded agronomists in favor of organic farming activists. He ignored dissent from experts warning that agricultural yields would plummet and pressed ahead with Viyathmaga’s agenda. As the Covid Pandemic struck, Rajapaksa passed a “nationwide ban on the importation and use of synthetic fertilizers and pesticides and ordering the country’s 2 million farmers to go organic.” Utopia was just around the corner, it was certain.
Sri Lanka’s meltdown was brisk. As Ted Nordhaus explained in his skewering must-read-assessment (read here):
“Against claims that organic methods can produce comparable yields to conventional farming, domestic rice production fell 20 percent in just the first six months. Sri Lanka, long self-sufficient in rice production, has been forced to import $450 million worth of rice even as domestic prices for this staple of the national diet surged by around 50 percent. The ban also devastated the nation’s tea crop, its primary export and source of foreign exchange.”
An infuriated mob descended on President Rajapska’s palace in early July 2022. Government security forces deployed fire hoses, tear gas and barricades before being overwhelmed by tens of thousands whose rage would not be deterred. Viyathmaga’s vision came full swing: explosive inflation, gas lines, food lines, shortages of medicine and everything else. Rioters burned effigies of the disgraced President Rajapaksa who wisely fled by motorcade before the mob had its way with him. Rajapaksa resigned from power via email; a nation in revolt and a dynasty destroyed in the rear view mirror.
Surely such a swift collapse would never happen in the West. We are too modern, too developed, too rich to suffer the same fate no matter how clownish our leaders have become. A Sri Lankanesque eruption is a decade away, or more, right? Buckle up folks because the situation in the West stands an excellent change of being considerably worse. Stay tuned for Part 2.
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