At Jackson Hole, The Cranks Prevailed

The Federal Reserve’s annual Jackson Hole retreat last week was a strange exercise. The theme was “inflation dynamics.” Yet the Fed’s measures of inflation have shown no dynamics, only statics, for years.

Fed Vice Chair Stanley Fischer said the following at Jackson Hole: “Although the economy has continued to recover and the labor market is approaching our maximum employment objective, inflation has been persistently below 2 percent.” Thus the economy is good, the employment situation is very good, and that of inflation superlative.

But conditions today do not bar these observations: 7 years of recovery as anemic as any since the 1930s; un- and under-employed persons numbering over 10 million; a financial sector combining with government to displace the real economy of production and jobs; an imminent stock-market crash.

Jackson Hole was particularly weird for the Fed this year: it gave the impression that the institution is oblivious.

It was also different at Jackson Hole this year because the Fed had company. There was a shadow conference hosted by the American Principles Project and run by Steve Lonegan, the man who in February had scored the conservative critics’ meeting with Fed Chair Janet Yellen.

At the shadow event (where I was a discussant), there was no talk of inflation dynamics, no concentration on tangents. George Gilder spoke of how information theory verifies that gold, and possibly bitcoin, functions as money better than all other comers. Judy Shelton and Benn Steil debated the wisdom of Shelton’s proposal for gold-backed bonds issued by the Treasury. Mark Calabria revealed the complicity of the New York Fed in helping the big institutions load up on sub-prime assets before the implosion of 2008. The panel on digital currencies told us how that innovation can supplant banks, central and otherwise. Rich Lowrie proved that the Fed suppresses wage growth in the name of inflation-fighting. British MP’s Kwasi Kwarteng and Steve Baker and U.S. Rep. Scott Garrett explained how monetary reform is politically feasible.

The APP’s Jackson Hole Summit was, manifestly, a comprehensive intellectual exercise in the service of diagnosing and solving a major practical problem. The matter of the government’s official inflation and unemployment numbers, the Fed’s focus, is not a real practical issue. It is an abstraction that at this juncture serves to obscure the difficulties with which this economy is beset. The Fed feels itself bound to stare at these irrelevancies, “inflation” and “unemployment” as defined by second-rate careerists at the Bureau of Labor Statistics. After it has done so, the Fed declares its principal duty discharged.

This is to fall into the fallacy of officiousness. One of the mental weaknesses which government succumbs to is to suppose that its definition of a problem encompasses the actual problem. It is a classic stratagem of the psychologically and intellectually timid. The variety, the entropy of the world is so great that one strives to impose order upon it. Strong minds understand that good attempts at ordering are at best approximations. Government minds hold that their impositions of order on the world are better than approximations: they are complete. At some point, the laziness extends to not even caring. Whatever the government says is the problem is what matters.

Stanley Fischer went on at Jackson Hole: “One striking feature of the economic environment is that longer-term inflation expectations…appear to have remained generally stable since the 1990s….[T]he fact that the Fed has kept inflation relatively low and stable for three decades must be an important part of the explanation.”

The last thing any normal person would think to say about where the economy has gone from the 1990s to today is that inflation has been stable. The jeopardizing of nothing less than the American Dream has been too incredible.

But Stanley Fischer is fulfilling his official role. Statute compels the Fed to look at price stability and full employment. That the BLS’s statistics in this regard are obsolete is beside the point. Fischer looks at them, coordinates the Fed to them, and the world is good.

Financial commentator James Grant has lamented that instead of the gold standard, we are on the Ph.D. standard. Fed chair Janet Yellen has a Ph.D., just like her predecessor Ben Bernanke, just like Fischer. Their career track, all three, was that of the professor. Beyond them, the Fed employs hundreds of Ph.D.’s.

Ph.D.’s, of course, are not at the top of the money pyramid. Aside from being impecunious, they are not, by definition, financiers or experienced with money, banking, monetary policy, enterprise, and economic growth in any but a strained and derivative fashion. They have no business dominating an institution close to the center of the legendary American economy.

Intellectually, the problem is that collections of Ph.D.’s, in universities for example, have a fatal conceit, to borrow a term from F. A. Hayek. This is that they are pushing the “frontier of knowledge,” the common credo of American research universities, you hear it so often. The effect is to suppose that only the collection of Ph.D.’s is necessary to push the frontier of knowledge, since that is what they say they are doing, they research and publish, and they have credentials and laurels. The capturing of the frontier-of-knowledge notion, by our Ph.D.’s collectively, serves as an armature defending the clique against other comers who are actually asking innovative and trenchant questions.

This can result in comedy, such as that provided by Fischer at Jackson Hole. Here was Mr. M.I.T. saying things he thought relevant in 2015 which a child of eight would laugh at (as Mencken would have put it). It will probably turn into a TED talk.

It is remarkable to hear the slur “crank” hurled at advocates of the gold standard, the supply-siders, non-Keynesians, and so forth. It is historically illiterate. The term “crank” derives from the leverage tool used by barn- and garage-inventors in the 19^th century, namely the people whose innovations in fact gave us the industrial revolution. The incitement of the greatest positive event in world economic history did not at all—not at all—come “officially.” It came from cranks. We owe them all our prosperity. The overlay of economic officialdom arose after the achievements of the cranks, and this overlay has fed off the real economy to this day.

If there is any doubt as to the objective intellectual superiority of the cranks, a text by one of the presenters at shadow Jackson Hole given a good reading will dispel it: George Gilder’s new book on gold money just published by the APP.