The dismal science. That's the name Thomas Carlyle, a Victorian essayist, gave to the discipline of economics, although some dispute that the term actually came from the writings of another well-known sage Thomas Malthus.
I am coming up with a new term, though, and it goes like this, the worthless science, because I am beginning to believe that everything I was taught in my myriad economics classes was just plain wrong. Worse there are people who still believe in it and these people are leading us totally astray.
One of the basic tenets, if not the most important that I learned, is that if you have a boom in jobs and the unemployment rate goes low, as low as it is now at 3.6%, we should be having an intolerable level of inflation, one that should cause the Fed to raise rates to be prudent because inflation inevitably erodes savings and purchasing power.
That's what happened a half century ago when we were at this level. However, it is not happening now as wages are barely up despite the ability of so many looking for a job to find a job. In other words, throw away the textbooks, they are not working.
Or let's go one step further. Employment has decoupled from the gross domestic product growth which is decelerating, decelerating to the point where the Fed felt the need, correctly, for a third cut in rates at its meeting earlier this week.
That's right, the textbooks say the Fed should raise but it is cutting because it can afford to cut as inflation remains below trend.
Now there are plenty of people, including most commentators, who do not seem to get or understand the factual repudiation of the one-time science of economics. These are people who use what I know is now discredited to make up theses about what the Fed is going to do, including, for example, the notion that somehow the Fed is done cutting because it hinted that it's done cutting.
But included in the refutation of any rigor in the arsenal of economics is any predictive ability in this new economy. Powell doesn't have any idea if he has to cut again because he has to look at the data as it comes in. I say this because this man seems to get the lack of science here. After all, he was talking about RAISING rates three times one year ago, not cutting rates. I think when you are that wrong you have to reassess the ability to use traditional economics to see the future. It's obvious to all but those who still cling to the notion that traditional economics has any worth at all, that it's possible to lower rates to keep the economy moving even as the obvious is happening - a slowdown in the industrial economy.
I think Powell, unlike the traditional economics partisans, gets that the industrial economy needs help even if the much larger consumer economy is humming along fine. The industrial economy is vital to the strength of the nation and to the growth of the GDP - there's a multiplier effect - that could take the GDP back to 3% or even 4% growth and that's a worthy goal. Who says, with this new economy, with companies like Amazon (AMZN) and Walmart (WMT) driving down prices daily, we can't shoot for something better than we are used to. If the texts are wrong - and they most certainly are - then the rates are, indeed, too high.
I am a company by company guy. With the exception of Honeywell (HON) and United Technologies (UTX) I can't think of any industrials doing that well. They are either being hindered by the trade war or hobbled by a strong dollar, directly a function of how high our rates are versus the rest of the world.
Traditional economists just the other day were saying a recession is on the horizon. With today's strong employment number they say inflation is just around the corner.
To me that shows you just how worthless this science is. The economy can and should be encouraged to grow. And the economics textbooks should be put out to pasture along with the acolytes who still insist on swearing by them even as they are so obviously and empirically wrong.