by Peter Schiff, Schiff Gold:
Jim Grant recently appeared on the Santelli Exchange on CNBC and the conversation quickly turned to this notion that “intellectuals” have the wherewithal to run the economy. Friday Gold Wrap host Mike Maharrey recently explained two very important economic principles that make it impossible for central planners to ever truly succeed. As he put it, they might be smart, but they aren’t smart enough to know they’re not smart enough. Nevertheless, this doesn’t seem to dampen the fatal conceit and hubris of central bankers who think they can micromanage a complex economy.
Grant put it another way. He called it the ignorance that knows not it’s ignorant.
Santelli kicked off the interview asking what Grant saw going on out there in the markets.
What I see Rick is a lot of very, very way out ideas entering the mainstream.”
Grant referenced an article he read in the Financial Times that asserted we need “new ideas to escape low inflation.”
I thought, escape low inflation?”
Santelli asked Jim to explain why he thought the notion of escaping low inflation is so perverse.
I think part of it, Rick, has to do with the number of birthday candles I’ve blown out. I came of age about the time that a Harvard professor named Sumner Schlichter was opining, and Professor Schlichter said, ‘We need inflation. We need two, or three, or four percent inflation because it lubricates the moving parts of capitalism. It empowers labor unions. It makes us feel better.’ All right, that was 1958 – 60, and wouldn’t you know that we got a lot more than Professor Schlichter bargained for? I would say one of the clear and present risks in today’s market is the intellectuals, is the ignorance that knows not it is ignorant.”
Santelli asked if high inflation greases the gears of capitalism, what are Mario Draghi and the intellectuals at the European Central Bank thinking with negative interest rates as far as the eye can see?
Grant again referenced the Financial Times column, pointing out that it accurately noted aggressive central bank intervention has brought us a great deal of debt. This has weighed down on the price level and failed to produce the inflation the central bankers hoped for. So, what’s the solution according to this FT article?
More deficit spending!
This reminds me, Rick, of something that was hot rather before my birth, which was the phrase ‘secular stagnation.’ That’s coming back into its own too. This was the formulation of a Harvard professor – of course, Harvard. Nice people at Harvard – called Alvin Hanson. And Alvin Hanson said in 1938 that we were in for a long bout of droopiness because immigration was down and the frontier had closed — 1938. So, what he didn’t see was World War II, the baby boom, and the greatest expansion in economic activity in the annals of America.”
The point being is that no matter how smart these professors and PhDs think they are, there is simply no way these central can foresee all of the factors operating in the economy. This dooms all of their tinkering and policymaking to failure.