“Remember Red, hope is a good thing, maybe the best of things, and no good thing ever dies.”
Wiser words were never spoken on the big screen than those of The Shawshank Redemption’s main character Andy Dufrense. We are none of us beyond redemption, so we are taught by this banker from Maine, even when we are punished for crimes we did not commit. In briefly researching the movie, one comes to learn that it is based on Stephen King’s 1982 novella Rita Hayworth and Shawshank Redemption. No doubt, Hayworth’s role in the movie stands out in all our minds, which is saying something as the superstar was no longer with us.
Dig deeper and you learn that King’s longer than a short story, but shorter than a novel, was part of a series called, Different Seasons, subtitled Hope Springs Eternal. How reassuring if enigmatic. More perplexing still is this master of the horror genre’s inspiration — Leo Tolstoy’s God Sees the Truth, But Waits. It would seem that Carrie has met Anna Karenina.
Clearly, it’s easier to judge those who write books by their most famous covers. But why not set such preconceived notions aside. You too can bask in King’s gorgeous prose from Shawshank and even Tolstoy’s beautiful words of inspiration: “If you want to be happy, be.” And redemption: “Everyone thinks of changing the world, but no one thinks of changing himself.”
These words resonate so against the backdrop of a country that remains intent on fomenting division, on splitting itself at the seams, bent on self-destruction. Perhaps it will have to come down to one man and his ability to change himself, to draw in more than his avid followers but his doubters as well.
For yours truly, it has thus been curious, nay fascinating that on matters of the Federal Reserve one Donald J. Trump has been silent as a mouse whose paws cannot bang out 140-character rants. Perhaps, just maybe, he is busy doing late night reading on the foundations of this venerable institution. If that’s the case, maybe he came across this little gem that was passed along recently:
“In selecting the members of the Board, not more than one of whom shall be selected from any one Federal Reserve district, the President shall have due regard to a fair representation of the financial, agricultural, industrial, and commercial interests, and geographical divisions of the country.”
Maybe that’s why the media has begun to dispense with the labels “hawk” and “dove” and is beginning to replace the aviary with simple human beings who have been there and done that, who have been on the receiving end of Fed policy for their entire careers. Take this from Kate Davidson at the Wall Street Journal:
“After his campaign criticism of the central bank’s low-interest-rate policies, many observers speculated he would seek more “hawkish” candidates who would favor higher borrowing costs. But his choices may be driven less by these issues and more by their practical experience, judging from his early picks for other top economic policy posts in the administration—drawn from investment banking, private equity and business—and the pool of early contenders for the Fed jobs.”
Meanwhile, the Financial Times’ Gavyn Davies had this to say:
“The last four Fed Chairs have all been clearly on the economist side of the line, and because they have all bought into the Fed’s economic orthodoxy, their actions have been considered somewhat predictable by the markets. A business person or banker might be less predictable, at least initially, and more prone to shake up the Fed’s orthodoxies, for good or ill.”
With deference to Mr. Davies, there can be no ‘for ill’ in shaking up the Fed’s orthodoxies, if you can call them that. Orthodoxy, from the Greek word orthodoxia, implies officials are cleaving to a correct creed. But what if policymaking has devolved from correct to simply accepted?
That would imply a good dose of heterodoxy, also Greek from heterodoxos, was in order, as in a departure from the official position. To be crystal clear, heterodoxy does not equate to heretical, from the Greek hairetikos, (pardon the digression but who gave the Greeks a monopoly on multisyllabic, cool words?). Even so, a bit of heresy would also do the Fed a world of wonders. The literal Greek translation means ‘able to choose.’
A recent study determined the study of economics in academia had itself become incestuous with a great preponderance of students being trained in the same school of thought. This determination was not only disturbing and dangerous, it demands politicians introduce a bit of heresy into our nation’s central bank.
Perhaps President Trump, his administration and all members of Congress should sit down for a tutorial on Heterodox Economics (nope, not making that one up), which refers to schools of economic thought which fall outside of mainstream — read Keynesian – economics, which is predictably referred to as orthodox economics. Maybe, just maybe, it’s high time a variety of schools are incorporated, as in the post-Keynesian, Georgist, social, behavioral and dare say, Austrian approaches.
That last one, the Von Mises-inspired Austrian school of economics is apparently public enemy number one. The FT’s Davies goes on to warn that some candidates up for those open and opening positions on the Fed’s Board of Governors are ‘Austrian’ economists, “a school that has apparently influenced Vice President Pence. An “Austrian” candidate would certainly alarm the markets.”
Davies has apparently done his homework. Back in 2010, one Mike Pence was serving in Congress as a representative of Indiana. In response to the Fed’s insistence on launching a second round of asset purchases, which the markets adoringly embraced as QE2, he blasted back that, “Printing money is no substitute for pro-growth fiscal policy.”
Pence’s words certainly ring Austrian, as the school considers malinvestment to be a menace, as well any rational person would. Malinvestment (we can finally score one for the Latins!) is defined as a mistaken investment in wrong lines of production, which inevitably lead to wasted capital and economic losses, subsequently requiring the reallocation of resources to more productive uses.
And we wonder why we’ve had such a long run of jobless recoveries that happens to coincide with the post-Greenspan era. Why would the markets abhor an Austrian? Clearly, we would not have starved productivity by overbuilding residential real estate in the years prior to the crisis. Nor would companies have gorged on record share buybacks in the years that followed. Agreed, these phenomena juiced returns. But to what end aside from protecting the legacy of the mythological ‘wealth effect’?
As my dear friend Peter Boockvar wrote of the wealth effect in response to the Fed’s meeting minutes from its January meeting: “The concept, invented by Alan Greenspan, and carried on by Mr. Bernanke and Mrs. Yellen, is the unspoken third?mandate of the Fed. Well Fed, you certainly got what you wanted in terms of a dramatic rise in asset prices over the past 8 years (just look at the value of equities relative to the underlying US economy) but a wealth effect did not happen if the pace of personal spending in this expansion is any indication. For many, it’s the wages they earn and the savings they keep that