The famous 19th century philosopher Soren Kierkegaard once said, “Life can only be understood backwards; but must be lived forwards.” He believed how we got to where we are today is based on the past. However, life cannot go on unless we live for the future.
Apparently, either the current administration in Washington did not get the message or do not have any philosophy majors running around their offices. The independent Federal Reserve Board (Fed), the Council of Economic Advisers (CEA) created by Congress, and the National Economic Council (NEC) created by a President Clinton executive order coordinate government-wide economic policy.
That is a lot of brain power in a small area. The quantity and quality of output from all that brain power is debatable. The Fed meets eight times a year, discusses recent economic trends, and votes to increase, decrease, or maintain one interest rate. The CEA submits an annual report of the President’s thoughts on the economy. The NEC has not issued a written report since February 2016 during the Obama administration.
What these three groups have in common is that they live in the past. For instance, the Fed stubbornly maintains that the interest rate cycles are primarily based on the unemployment and inflation rates. In today’s environment, both unemployment and inflation are at historically low levels, but the central bank has yet to reduce the overnight federal funds rate. This has resulted in an inverted yield curve which under old style economic theory was a leading indicator of a recession. While the economy has been turbulent and on a slightly downward trend, it does not appear a recession is likely in the next twelve months.
Then again, it appears in today’s new economic thesis that one tweet can affect the stock market, bond market, and Gross Domestic Product within minutes. The result is investor frustration because investing becomes shooting an arrow at a moving target. It’s no wonder the alphabet soup of government agencies has little idea of what to do.
The big difference is that we live in an interconnected world. What happens in Belgium or in Rwanda matters to Americans. The old assumption that if the United States sneezes the rest of the world gets a cold is as outdated as the flip phone. This brave new world economy is still new which means there will be a lot of growing pains. No one can predict if the global economy will reach some equilibrium point or will remain unstable indefinitely. However, we can be reasonably certain the U.S. will have 200 trading partners instead of the historical handful from the last century.
The Fed, CEA, NEC, independent economists, and leaders of every industry should sit down in one room and brainstorm creative new ideas, leaving aside the stale theories of yesteryear. Not every idea will work which will frustrate many in the Twitter universe who expect perfection the first time. We should not be stuck in the past, or warmed over ideas that did not previously work, or on the first thoughts. This will take time, patience, and lots of testing.
Apple co-founder Steve Jobs, evidently a reader of Kierkegaard, restated the life must be lived forwards quote by stating, “Let’s go invent tomorrow rather than worrying about what happened yesterday.” That sounds like a good wake-up call to the Fed, CEA, and NEC to try a new way.
David M. Green