Capital Controls

The currents of the oceans carry warmth to northern latitudes. The jet stream can be ridden by jets carrying travelers to new adventures. In much the same way, money flows around the world in waves which make nearly every aspect of our economic life possible.

That may be coming to a halt soon, however. The climate change that brings us trade wars also shuts down the financial weather systems which move in a predictable bounded chaos. Our ability to predict the economic future, always right in bulk but rarely precise, may be closing down.

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Panic, But Slowly

The economy has been expanding since the start of 2010. It hasn’t been rapid, and It’s only now enough to absorb the workers who need jobs, but it’s real. It’s only natural for economists to ask, “When does it end?”

That’s not because they are extremely un-fun people. It’s their job. Recessions are a much bigger problem when no one sees them coming, and history shows that we never really see them coming. And that economists are always worried about the next recession, but we don’t really listen to them.

So is it time to panic? As Groucho tells us, “There’ll be plenty of time to panic later.”

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Inflation is Hip

Inflation is certainly surging, it remains to be seen how much of a problem that is. What we do know is that some regions of the nation, particularly cities where businesses have embraced technology, are surging ahead quickly. Some a bit too quickly.

In a nation already divided, the success of some cities is only accelerating the divide. If they become too successful their high cost may ultimately slow growth. But for now, the benefits of the recovery are heavily centered on a few places.

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Other People’s Money

The stock market is high. What gets a market feelin’ good and oblivious to everything around it is a powerful drug, one that has the ability to cloud judgement like nothing else. The opium of markets is OPM, or Other People’s Money.

Where the stock market should be feeling blue and dealing with the realities of a world unraveling with trade wars and debt, it’s taken another course. It’s decided to just get high the best way it can. In that state of euphoria none of that other stuff matters, and everything is good. We have plenty of OPM to go around.

Right now, the stock market has a serious OPM crisis that very few people are talking about.

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Inflation

In 1981, America stood at a genuine crossroads of the Postwar era. It seemed as though everything had been floundering for nearly a decade. Watergate, oil price shocks, and inflation were eating away at the faith and the paychecks of American workers. Millions of them had entered the workforce as Baby Boomers came of age, only to find that working life was no longer a ticket to any kind of American Dream.

Into this rode a hero as if on horseback. The assault on runaway inflation had been orchestrated since 1979, but it was about to come to full fruition. No, that hero wasn’t Ronald Reagan, it was Federal Reserve Chairman Paul Volcker. Interest rates rose to 21%, the highest the Fed has ever seen. It worked. Volcker would eventually be mythologized heavily for his role in killing inflation once and for all.

It’s an important story because inflation, the villain of the 1970s, is definitely back.

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Trade War Without Ammo

The trade war is definitely on, no matter how Wall Street wants to deny it. Serious investors have downplayed recent events as part of a grand strategy, a negotiating tool that will all work out in the end. The reality, that there isn’t really a good strategy in place here but simply petty tactics, has not sunk in yet, at least in America. But the rest of the world knows better.

For the purposes of this discussion, the European Union will be diminished to Germany. After all, this is the economic engine that powers the continent right now, and Merkel’s leadership is critical. Where is Germany going? The long and short of it, the strategic and the tactical, is to the east. This response is proof enough that there is no US strategy which makes any sense.

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When Economics Fails

I have been working on this, now what feels like a year overdue.  Look for more this week.

Economics is nothing more nor less than the study of the primary way in which people connect with society and get on with their lives.

In everyday life, you may interact with a few people – family, colleagues, and friends. But through the process of eating and paying the mortgage you interact, at some distance, with hundreds more. Because this interaction is entirely through something called “money,” a way of keeping score, it’s very tempting to look at it entirely through numbers. The dizzying details of tens of millions of exchanges every day makes a top-view in bulk the most desired method of analyzing how things are going.

Yet this process has proven wrong over and over again. The failure of economics, particularly macro-economics, is the primary reason why the only true study of an economy has to be a People’s Economics.

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