We have heard from various administration officials over the last few years how their decisions on policy will depend on the data and not some theoretical modeling or a priori intuition. Sounds a lot like empiricism, the basis for the scientific method, which relies on evidentiary proof based on actual life experience.
One of the problems that arise with data is when it’s subjected to an interpretation that supports a predetermined narrative. What’s needed in cases that are inherently subjective is an historical reference to what has been empirically established, if available, and not something viewed through the prism of what conveniently fits into some narrative. Unfortunately, that may not always be available.
Another problem is that quite often the data itself is misrepresented; this may be through omission, distortion or outright lies. We may not know that at the outset, but eventually it will become apparent either through further analyses or just plain calling out those who sought to mislead for whatever reason.
In either case this will create confusion not only about the decision making process, but the purported facts on which it relies. This issue is not isolated to any particular business, political party or institution as the lack of integrity and/or intelligence in policy making has become quite commonplace. We should always keep in mind Hanlon’s razor, which states “Never attribute to malice that which is adequately explained by stupidity.”
I am not suggesting that everything can or should be determined by data as neither common sense nor principles are subject to quantitative analyses. However, when seeking to understand natural or behavioral phenomena, good data, objectively researched and interpreted, will provide an empirical basis of understanding. That sounds all well and good, but if we judge our leaders and their so called experts based on experience we are left with a contradiction as the evidentiary proof is contrary to the policies adopted.
In economics, the most data saturated discipline there is, we can see examples of how data was used successfully or irresponsibly. Looking at just more modern presidential administrations provides us with some comparative illustrations. Nixon, who wanted to have no monetary restraints, and readily admitted that he was bored with monetary issues, severed the dollar from the gold standard. The results were catastrophic as the dollar plummeted to the point where US Treasures’ had to be denominated in Swiss Francs in order to attract buyers; the obvious calamity of runaway inflation and lack of investment caused the infamous “Stagflation” that plagued the US for decades.
Eventually Paul Volker was made Fed Chairman under Carter and Regan, instituted policies that from 1979 to 1987 managed to stabilize the dollar. With Regan and Clinton we get some data driven sanity through tax, health and welfare reform, fiscal restraint, investment incentives, free trade policies, etc.
I think it was the campaign strategist James Carville that told Clinton’s staff that the most important message they needed to understand was “It’s the economy, stupid!” Clinton’s campaign did not direct that message in those terms to the electorate, but they definitely got the message. The recession was not being properly addressed by George W.H. Bush’s campaign and that cost him the election.
It took over two decades of fiscal restraint and reforms to eventually manage a recovery, and realize deficit and debt reduction to a degree that actually resulted in a surplus. That’s what honest data driven policies did for this country back then, and we sorely need that now.
Instead we got Trump, a president about as ignorant of economics as he was of ethics, a narcissistic reality show host that was incapable of dealing with reality. True he cut taxes, which mostly benefited the rich and corporate elite, but at the same time spent money with no focus other than to manipulate the market to benefit his cronies on Wall Street; all of that was clearly done despite the data that screamed further deficits and debt. When Jerome Powell started tapering CE in late 2019, Trump threw a tantrum even before Wall Street could, and Powell, the ever ineffective sycophant that he is, immediately reversed course.
Trump’s sole contribution to health reform was to attack the ACA; true, the mandate was a horrible breach of constitutional and ethical standards and should never have been enacted, but he offered nothing else to reform what the data showed was an ineffective and wasteful system.
He eviscerated free trade with an avalanche of sanctions and tariffs that in reality were nothing more than taxes on Americans; you didn’t need a data base to figure that one out. He promised to stop the endless wars in Afghanistan and Iraq, but failed to stop the fiscal and physical bleeding. He declared war on immigration, a strange policy considering a nation that thrives on it both economically and culturally.
It would be hard to see how things could get worse, but never underestimate a politician’s power lust. In just a few months the Biden administration makes Trump’s irresponsible policies comparatively benign. I remember how we were all appalled at the record deficit the Trump administration had created, adding to a debt burden that screamed for relief; Biden’s administration is working hard to make that many times worse.
When even the OMB, ever more Fed governors, the GSA, and even some Wall Street elites who benefit from the most drastic CE in history, speak to rising inflation, we are told by the administration, and of course the ever accommodative Chairman Powell, that it’s all transitory. Now here’s where the data makes either fools or liars of them all. Since the Federal Reserve was created in 1913, the US dollar has lost 95% of its value as of 4Q 2019 due to monetary inflation. Since then, even more to the point where the Fed now owns 76% of the Federal debt, a debt most economists know is likely to end the dollar’s status as the world’s reserve currency, and destroy the wealth of many Americans.
Artificially repressing interest rates has only exacerbated the problem. With real inflation running over 5%, and the UST 10 year yield at about 1.25%, we have an actual negative rate of 3.75%. Understandably the Fed has had to step in and buy the debt as foreign sovereign purchases declined as the US Treasury is no longer a safe haven. The famous writer of the Dow Theory Newsletter, Richard Russell, once said “He who understands interest earns it. He who doesn’t understand interest pays it.” History has shown that there has never been a fiat currency that has not failed; eventually, in some way, shape or form, debt will take its tool.