When I saw these employment figures this morning, best in 50 years, 266,000 jobs created, benign inflation, I thought two things: one, everything I learned studying economics at Harvard was wrong, and two, we should no longer want to tie the trade war with China, we should want to win it.
Let me explain.
When I studied with all the big muckety muck economists at Harvard, I learned that you simply could not have the numbers we had this morning, which is wowza jobs and low inflation. You could only get this kind of job growth by fanning the flames of inflation which would then cause the Fed to crush the economy which would then cause a recession.
That's precisely what happened last year at this time when Fed Chief Jay Powell, about from my era of economists, dusted off the playbook of what to do when the economy was strong and called for four rate hikes.
That turned out to be poisonous and we are finally getting back to where we were when he set the economy back. My hope is he sees that the robust growth doesn't necessarily equal super hot inflation and he stays on the sidelines ready to help the industrial economy if the trade war gets even hotter.
Which brings me to point number two: maybe the president, hate him or like him, should just walk away from the peace table trying to broker a deal with the intransigent Chinese and just put the tariffs on the next $150 billion worth of goods, only stopping to evaluate whether that would create an unfair advantage for other foreign country products - we don't want Samsung to be the winner versus Apple (AAPL) because Apple would be hurt disproportionately in this next round.
Why go for the win? Because, again, when I studied economics, I was taught that tariffs create tremendous inflation and, again, Fed intervention that would crush the economy. Through the wonders of technology and scale that's just not happening, prices for goods are not going higher. In many cases they are going lower - call it the Amazon (AMZN) factor. If you want to go full circle I took classes that were pro-marxism talking about the superiority of the Soviet model. The Chinese model, which had been so good to bring in so many people to the workforce, hundreds of millions out of poverty, may be cracking. We are getting declarations out of the Chinese government about how the people should not worry about financial risk.
That sounds like the U.S. in 2008 if you ask me. I know my old friend Larry Kudlow from Kudlow and Cramer, our predecessor TV show, said talks are "intense" but every time we hear that the Chinese move the goalposts and make absurd demands. Given how many U.S. companies this quarter talked about mitigating Chinese risk by switching manufacturing to other countries, why not play it out? With these jobs numbers, hate him or like him, the long game now favors President Trump and the U.S. If we stop talking the Chinese will have to do more than just buy soybeans. They will have to admit that they have been stealing intellectual property for years and admit that they have been dumping goods for years and that they have been hacking our computers for years while flooding our country with killer fentanyl.
Only then can the talks begin in earnest. Right now we are still allowing the World Bank to give China money like it is some developing country, and we fund a huge part of the World Bank's budget. We are so far away from where we need to be that one can only say, let's stop trying to tie, let's go for the win, and walk away from the table until the Chinese at least admit what they have been doing, and if they really want a substantive deal, they must renounce their ways and start playing fair with our nation.