What Have the “Experts” Gotten Right? In the Real Economy, They’re 0 for 5

The mainstream media continually hypes the authority of “experts,” i.e. people with a stack of credentials from top institutions.

But does the mainstream media ever check on whether the “experts” got anything right? Let’s compare the “experts” (conventional PhD economists) diagnoses and fixes with the results of their policies.

Let’s stick to the big issues: inflation, productivity, near-zero interest rate policy (ZIRP), employment and “growth”. If you get these wrong, you get the entire economy wrong.

If you can’t get the big issues right, your “expertise” has failed: your “expertise” is not just worthless, it’s counter-productive, because if common-sense policies had been put in place instead of the “experts'” fixes, we’d have made progress rather than digging a deeper hole.

1. Inflation. Conventional “experts” believe inflation has been near-zero for the past decade and will continue to be near-zero as far as the eye can see.

Did they get this right? No. Households exposed to healthcare, higher education and rental expenses have seen staggering increases in costs for the same (or diminished) services. In other words, the purchasing power of their earnings has plummeted.

If we measure these “Big Ticket” items, we find inflation rates of 100+% over the past decade. I laid this out in detail in The Burrito Index: Consumer Prices Have Soared 160% Since 2001

The “experts” solution to out-of-control costs is to borrow trillions of dollars— in other words, the “fix” to out-of-control costs is out-of-control borrowing.

And remember: borrowing is nothing but consuming future earnings today, leaving less disposable income to spend in the future as interest payments eat the borrower alive.

2. Productivity. The honest “experts” admit they are flummoxed by the steep decline in productivity, which is the only enduring source of higher wages and profits.

The “experts” are blind to the diminishing returns on financialization and globalization–the two engines of corporate profitability.

3. Zero interest rate policy (ZIRP). The “experts” at the Federal Reserve and elsewhere claimed that near-zero interest rates were the fix-all solution to low growth in GDP, employment, wages and business investment.

Precisely what’s been fixed by ZIRP?

We know the answer to the other side of that question: What’s been destroyed by ZIRP? Savers and pension funds. The hundreds of billions of dollars in interest income that once flowed to savers, pension funds, etc. have been diverted to banks and borrowers–except those paying 19% interest on credit cards.

The truth is ZIRP has been a gift to banks, lenders and corporations borrowing immense sums to buy back their own shares. There’s no mystery why productivity has plummeted; the borrowed money went to boost stock options and financial games, not productive investments.

The ZIRP/NIRP Gods and their PhD Priesthood Have Failed (September 20, 2016)

4. Employment. Statistical trickery cannot disguise the reality that meaningful employment (permanent, full-time) has weakened structurally, and the number of adults in the workforce with jobs has also weakened.

A handful of high-profile economists (Michael Spence et al.) have addressed the issue of automation, and concluded that “software eating the world” is weakening employment across the spectrum from high-skill to low-skill.

The conventional “experts” either ignore the issue, don’t understand it, or cling to a cargo-cult-like belief that “technology always creates more jobs than it destroys,” but with zero evidence to back up this faith-based assertion.

5. Growth. Few “experts” dare address stagnation and the Keynesian obsession with “growth” on a planet with declining resources (have you looked at fresh water recently? Central banks can’t print it) and rising competition for what’s left.

The “experts” reckoned that making borrowing cheaper would spur “growth”–but once again, they ignored the diminishing returns on cheap credit:

This chart is bank credit. Add in corporate, household and government debt, and you get a picture of massive increases in debt yielding pathetically low “growth” in GDP.

The “experts” are also flummoxed by the collapse of new business growth. How many conventional PhD economists have made a big-time academic or government career studying the stultifying consequence of over-regulation and regulatory capture by corporate cartels? How about the rise of local government junk fees and the crushing burdens of providing healthcare for employees?

Whatever GDP growth did occur did not generate higher wages. Wages for the bottom 95% stagnated or declined when adjusted for inflation.

In the five dynamics that matter, the “experts” are 0 for 5. Malinvestment fueled by cheap credit, financialization, perverse incentives, over-regulation, the crushing pressure of soaring healthcare costs, the strangulation of small business– these are not independent dynamics, they are causally linked.

If the “experts” were assessed on results, they’d all be fired. Eight years of failure and counterproductive consequences is enough to declare the “experts” are only “experts” in generating excuses and failed fixes to systemic ills.

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Check out both of my new books, Inequality and the Collapse of Privilege ($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle, $8.95 print). For more, please visit the OTM essentials website.

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  • Charlie Primero

    The Experts are not flummoxed, stupid, or even incompetent.

    Every malfeasance and malfunction Smith listed above is the result of closely calculated and well-designed interlocking systems specifically designed to harvest wealth from working stiffs and transfer it up the pyramid.

    Stop falling for the con job of “Oober doober we so stoopid. Derp. Sooorry. We do better next year”.

    The only job of “experts” is to use propaganda and rhetoric to convince the sheep watching Bloomberg Business and reading the Wall Street Journal that this situation is normal and optimal.

    Listen to this new interview with Catherine Austin Fitts: https://jaysanalysis.com/2016/12/13/esoteric-hollywood-catherine-austin-fitts-on-systemic-corruption-2/

    • sufferingsuccatash

      You are correct CP—-under Obama—the “recovery” has been nothing less than a very well planned pillage.

  • WillDippel

    Here is an article that looks at how the Federal Reserve misled Americans about the health of the economy prior to the Great Recession:

    http://viableopposition.blogspot.ca/2016/12/why-we-shouldnt-trust-federal-reserve.html

    Despite the fact that the brilliant minds at the Fed have access to all of the economic data, they still manage to get it wrong.

    • Josh Stern

      They relied on the predictive/self-preserving powers of the market buying collections of mortgage bonds. That market turned out to be a lot less smart than it thought it was. It was relying on the bond raters – S&P, Moody’s, & Fitch – but they were biased by self interest, sloppy, and not thinking straight about some issues (e.g. correlation of defaults across markets in different cities).

      The Fed also was blind to the relative size of short term borrowing markets it was NOT regulating in comparison to the size of those it was regulating. They ended up calling Bear Stearns/Lehman/AIG/Goldman a run on the *shadow* (i.e unregulated) banking system.

      Fed should have been more vocal about the markets risks of ending Glass Steagall. They already had a big example of disaster with LTCM in 1998 – which wasn’t even a bank – so it shouldn’t have been necessary to repeat the problems with big leverage entities connected to banks and big insurance companies, which many other businesses depend on, like banks.

      In the above cases, the main problem is short-sightedness rather than true corruption. One kind of rememdy would be to allow a lot more & more serious public commentary when they are writing & revising the relevant laws. This stuff is literally much too complicated and too opaque for Senator Expensive Haircut and Senator Tall Forehead to figure out with their non-specialist staff.

  • Josh Stern

    The general public in the U.S. has zero economic education. Only a tiny percentage of high schools offer any high school level economics. Only a tiny percentage of people go on to college and take economic courses there. Only a tiny percentage are self-educated. That ignorance is easy to exploit in various subtle ways.

    For instance, one doesn’t need an economics education to understand that, in principle, there is a difference between mean and median income levels and mean and median levels of household affluence. It would be easy for experts to say “This set of policies has boosted the mean levels of income and affluence while not helping the median very much. The difference can be easily understood in terms of most all of the positive gains going to to the top 1% and most of those going to the top 0.1%. This allows the mean on the dial to move a lot while hardly affecting the median at all. In this way, it is true that International trade benefits the US as a whole, while also true that it hurts median wages. Ultimately perhaps the value of labor will go to zero while automation takes over almost completely, making capital infinitely more useful than labor. All these changes could be easily adjusted for with changs to various taxation and benefits policies, keeping everyone moving in a positive direction. But explaining that to the general population is not in the self-interest of the 0.1% funding the economic think tanks that sponsor the expert speakers. So they do not bother to note these points.”

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  • Dec 20, 2016 Post-Truth: Why Facts Don’t Matter Anymore

    Why we can’t seem to agree on what’s true when it’s easier than ever to check?

    https://youtu.be/dvk2PQNcg8w