Note: I am going to talk about inflation, and markets, and the Federal Reserve in the first part of this post – I am not making a “market call,” I am not going to talk about the rectitude or efficacy of the position of the Federal Reserve, I am not going to perform a statistical or economic analysis, I am going to talk about communications-style. If you take anything I say as some sort of financial advice (which I don’t know how you even could), well, you deserve what you get.
The cover-up is not just worse than the crime, it is now virtually impossible.
What do the Federal Reserve, Boris Johnson, Major League Baseball, and the former President of Liberty University all have in common? They’re all liars.
And more than that, they’re all representatives of important institutions: government bureaucracy, representative and executive government, entertainment, and religion and academia.
With the amount of analysis and commentary available and the amount of information that always leaks, or otherwise finds its way into the public sphere, all across the world, institutions still play a game where nobody actually quite comes out and tells the truth. The central bank of the United States (the Federal Reserve), an organization of decisive importance, has their pronouncements and policies analyzed with the depth normally reserved for the forensic investigations of plane crashes by the NTSB, and unlike those scrupulous investigators, the analysis is often conveyed to the broader public by hacks trying to frighten, enthrall, or generate ratings.
Public speeches and announcements by the Federal Reserve are therefore worded with precision, and, even if they don’t know what the Federal Reserve is or what it does (and even more likely, do not know that it exists at all), citizens are pushed and pulled by the weight of those announcements
Regarding the current inflation gripping the financial markets and the economy, here is Jerome Powell in his Jackson Hole speech on August 22nd, dashing the hopes of those investors who were hoping for an easing of monetary policy (highlights mine – anytime you see a bolded line in any quote, that was me):
Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance. Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.
Imagine if, instead of using the euphemisms “below-trend growth,” and “softer labor market conditions” the Chairman had said, explicitly:
“We are going to try to cause a recession by hiking interest rates.”
It is fair to speculate if public opinion would “allow” the Fed to raise interest rates if he had spoken with such plainness. That openness would bring the policies outside of commentary and spin and analysis, the decisions that impact the entire global economy would be out in the open even if it constrained the Fed’s ability to act. A full public debate could be had about the whether this is an appropriate course of action, with a full understanding on either side of the issue of what the presumed consequences of those actions would be.
Speaking in euphemisms doesn’t work anymore with the information we all have available to us. Every time the head of an important institution or organization seeks to obscure, or speak in euphemisms, cover-up, or lie, they are no longer “getting away with it,” or “doing what needs to be done,” they are, in fact, eroding their position of authority. Good or bad, right or wrong, wise or foolish, short-sighted or over-broad – institutions must adapt to the new environment or continuously risk their power and prestige. Whether or not you think the public should be involved in the Fed’s decision, technocrats can no longer make policy out of the eye of public opinion without devastating the public’s trust in their decisions, which is intolerable to the continued functioning of those institutions over time.
There are, at least, two specific evils caused by not being explicit and open and honest.
The first is the fact that lack of candor is everywhere, almost immediately, exposed as hypocrisy and untruth.
The second is, as mentioned above, the institution loses control of their own message and gives it up to tabloid writers, doom-spammers, political hacks, and vain television hosts. Whatever is said or released is then filtered through a million viewpoints and there is enough ambiguity for actors with their own purposes to impose a meaning on these communications. Whether it is good or bad, the headline: Fed Determined to Cause a Recession to Stop Inflation, leaves no room for interpretation.
This specific speech lacks candor in a more subtle way as well. Jerome Powell endorses a specific view of the “Great Inflation” (the period of high inflation lasting from the mid-1960’s to the early 1980’s) that is not a fact, but rather an opinion (as far as I can tell, there is not much consensus at all as to the causes of the Great Inflation except that oil prices were high), through a rhetorical sleight-of-hand. More from his speech:
The first lesson is that central banks can and should take responsibility for delivering low and stable inflation. It may seem strange now that central bankers and others once needed convincing on these two fronts, but as former Chairman Ben Bernanke has shown, both propositions were widely questioned during the Great Inflation period.1 Today, we regard these questions as settled. Our responsibility to deliver price stability is unconditional. It is true that the current high inflation is a global phenomenon, and that many economies around the world face inflation as high or higher than seen here in the United States. It is also true, in my view, that the current high inflation in the United States is the product of strong demand and constrained supply, and that the Fed’s tools work principally on aggregate demand. None of this diminishes the Federal Reserve’s responsibility to carry out our assigned task of achieving price stability. There is clearly a job to do in moderating demand to better align with supply. We are committed to doing that job.
The second lesson is that the public’s expectations about future inflation can play an important role in setting the path of inflation over time. Today, by many measures, longer-term inflation expectations appear to remain well anchored. That is broadly true of surveys of households, businesses, and forecasters, and of market-based measures as well. But that is not grounds for complacency, with inflation having run well above our goal for some time.
That footnote which is sneaked into the first paragraph links to a speech by former Chairman of the Federal Reserve Ben Bernanke in 2004 titled The Great Moderation. Here are some relevant quotations from Bernanke’s speech:
Three types of explanations have been suggested for this dramatic change [in reduced macroeconomic volatility – including inflation]; for brevity, I will refer to these classes of explanations as structural change, improved macroeconomic policies, and good luck…
…My view is that improvements in monetary policy, though certainly not the only factor, have probably been an important source of the Great Moderation. In particular, I am not convinced that the decline in macroeconomic volatility of the past two decades was primarily the result of good luck, as some have argued, though I am sure good luck had its part to play as well…
…Monetary policymakers bemoaned the high rate of inflation in the 1970s but did not fully appreciate their own role in its creation. Ironically, their errors in estimating the natural rate [of unemployment] and in ascribing inflation to nonmonetary forces were mutually reinforcing…
I want to be careful in what I’m asserting, because I do not have the expertise to be critical of the policies indicated by Bernanke’s or Powell’s analysis. I do feel comfortable in criticizing their characterizations of policy, consensus, and history though. When citing Bernanke, Powell is again speaking in code, what I think he is really saying is that the Federal Reserve of the 1960’s and 1970’s thought that inflation was beyond their control and the Chairmen of the time were later despised and condemned for taking this view, and, critically, that this is not a mistake he intends to repeat.
I could wonder if he fears to repeat that “mistake” because of his determination to have correct monetary policy, or because his own pride and vanity are pushing him to be a “hero” like Paul Volcker (the Federal Reserve Chairman often credited with stopping the “Great Inflation” by forcing through rate hikes that may have helped cause a terrible recession). I don’t mean to pose a genuine question about Powell’s motivation here, I happen to think he is trying to do what he believes is the right thing in the right way, but there is room for interpretation. Without this citation, he is perhaps more trustworthy, rather than less, at least to an outside observer. “Fed watchers” are not the ones who may be confused about Powell’s meaning.
In the staid, stilted, and academic language of the Federal bureaucracy he is almost shouting: “the public be damned!” without telling the public why he is cursing them. It is the not telling the public “why” he does not care about their input which is problematic. An institution cannot (or, better to say: should not) always be constrained by public opinion, but, again, it can no longer seek to hide things from the public.
As to the substance of Bernanke’s speech, what I am comfortable saying is that, through the Global Financial Crisis and the COVID Crisis, it is not clear to me at all that “improved monetary policy” was, in fact, the primary contributor to the period of economic expansion with low inflation called “The Great Moderation.”
Powell, when citing Bernanke’s speech and endorsing the “expectation” view of inflation, is not providing actual evidence that hiking interest rates is a good policy, but is rather providing a justification with an appeal to history, one that is made to sound like it is backed by empirical research. Again, all of this justification and citation is just another way to avoid saying:
“We believe the only way we can stop inflation is by causing a recession.”
But how many people are going to go ahead and read the speech Powell is citing? And how many have a basic knowledge of the history of monetary policy? The problem is, of course, that we can read the speech Powell is citing (it’s not long, by the way, and you don’t need to understand too much about monetary policy to get it) – and what this does, for me at least, is expose the obfuscatory quality of Powell’s remarks. A critical government bureaucracy that is not accountable to the will of the public (as much as anything is immune from the will of the public anymore), must be open and transparent. Borders are dissolved, there is no longer a separation between the technocratic government bureaucracy and the lowliest of cashiers or medical payment processors or construction workers. But at least, in this instance, Powell is not modeling personal and public moral behavior for the entire country as a symbolic leader, like our elected government officials.
If you have read about Premiership of Boris Johnson, I feel like I barely need to say anything here. Our politics are full of hypocrisy, astounding hypocrisy, and again, there is nothing new here besides the exposure afforded by modern technologies. And the titanic volume of blatant, flagrant violations of laws by politicians during the Pandemic, policies which were enacted by the politicians themselves, is enough to make a Borgia Pope blush, and that is not particular to Johnson.
I could also talk about Trump here, but I don’t really want to talk about him anymore than we all already have, plus, I’m not sure it was hypocrisy that caused Trump to lose his election, so much as his egregious incompetence and the loathing he inspired. Boris Johnson, on the other hand, was deposed by his own consistent dissembling.
Boris Johnson, the Tory MP and former Prime Minister of the UK, was forced to resign as his ministry sank after being swamped by a number of scandals, occurring almost simultaneously, and all involving public dishonesty about personal immorality. He flouted his own lockdown rules, and, even dumber, he did not disclose their full extent, and instead let the incidents trickle into the public discussion one by one. Through this lack of candor, he ensured the continuous broadcast of scandal, which blended with the other scandals routinely appearing in the news media about his administration of the commonwealth. Amongst numerous other scandals which I won’t bother to mention, Johnson was accused of skirting conflict of interest rules when having a wealthy donor pay for a refurbishment of his residences, of attempting to keep a dubious political ally in office, of cronyism in public contracts for the Pandemic, and finally, of elevating a political ally whom he was warned (and then lied about being warned) had sexually assaulted men.
Being able to see, in pictures, the Prime Minister contradicting his own laws when so many in the United Kingdom were suffering under strict controls, as well as allowing his political opponents to control the image (correct, as it seems) of him as corrupt beyond redemption by the relentless leaks alleging wrongdoing, dismantled the barrier between the excusable hyperbolic rhetoric of a politician and the dishonesty of the private man. It is difficult now to be an “elite” and to remain exempted from the laws which constrain the humble and meek when every person can simply look at their phone and be filled with indignant rage at the injustice and hypocrisy manifest in such behavior.
I do not know if being honest about his own disregard for the law or basic tenets of public morals would have saved Johnson, but I’m sure his lying damned him. But behind the mismanagement of the crises and dissolution of the boundaries between private and public affairs by the unceasing flow of information lies another failure of public institutions in managing their communications environment. Instead of acting as soon as it became clear that Johnson’s personal failings would destroy their political standing (or, in an imagined Utopia, acting on principle as soon as they discovered the Prime Minister’s personal failings), Johnson’s Conservative Party, which enabled his maintenance in that powerful position, only reacted after public opinion had turned and Johnson’s unpopularity would cost them elections. If a public-facing institution is constantly reacting , it cannot lead, but only try and fix problems which have already arisen. This is the curse of a constant connection with the public, and the constant use of opinion polling. Parties proceed to follow the polls instead of trying to enact policies which will move the polls. In order to maintain this constant reactionary stance, rhetoric, even more than it always has, replaces policy.
Next up to the plate, another institution that is losing the trust (what little it retained) of its fanbase, Major League Baseball.
The last two or three years, baseball complacently allowed pitchers to cheat en masse by looking the other way while they applied so-called “sticky stuff” to their hands to give them a better grip on the ball. This superior grip allows pitchers to generate more spin (a higher spin rate as its known) on the ball as it leaves their hands, generating more movement, and making those pitches harder for hitters to hit. This cheating was noticed and rampant.
Applying a “foreign substance” to the ball is illegal according to the official MLB rules, but that did not trouble MLB until it was exposed by fans posting videos on Youtube, players complaining in the press, and most of all, by lower batting averages – and nothing frightens the MLB more than games with fewer hits and home runs. There was a “crackdown,” which apparently did not stick. Noting statistical oddities, Major League Baseball realized that the spin rates on pitches were still high, so in the middle of the 2021 season, they sent a memo out to the teams announcing the rigorous implementation of all sorts of checks to make sure pitchers could not cheat anymore.
Waiting until everyone knew about it, and until they were afraid it would hurt the league’s bottom line, MLB announced publicly that it would do what it should have done immediately. The delay is as bad as a cover-up. Instead of acting in a decisive manner, they opened themselves to criticism from fans, and from a 24/7 sports-commentary media ecosystem salivating at the prospect of chewing into a meaty scandal. Ubiquitous video and sophisticated statistical analysis makes cheating, in a public sport, difficult to hide.
Even worse, what Major League Baseball’s fecklessness has the potential to bring about the outcome they fear most, having fans stay away. Faith in the integrity of an institution is important, even when that institution is as (perhaps to some) trivial as professional sports. According to US Diplomatic Cables (leaked of course, like everything else now), when Bulgarians lost faith in the integrity of their soccer league because the teams were taken over my organized crime figures, they stopped going to matches. The owners of Major League Baseball teams are not quite mafiosi (well, not to most observers at least), but loss of integrity is loss of integrity, whether the cause is crime, incompetence, or deception.
Shameless hypocrisy is perhaps no more reviled than in matters of religion, where morality is often foundational to the creed. Evangelical Baptists are among the most declamatory spiritual moralists in United States, and such fervent faith is much abused by unscrupulous preachers to line their own pockets, as with so many televangelists, faith-healers, and other predators.
Jerry Falwell, Jr. is the son of noted conservative politician, umm, excuse me…noted pastor and televangelist Jerry Falwell, and was the President of Liberty University, a faith-based academic institution in Virginia, whose mission statement includes the following line:
Persons are spiritual, rational, moral, social, and physical, created in the image of God. They are, therefore, able to know and to value themselves and other persons, the universe, and God.
Falwell’s scandal involved both a breach of fiduciary duty and the perversion of good, Christian sexual morals. He was accused of recording and watching his wife have sex with a pool boy (yes, if you don’t remember, this is actually what happened) over the course of many years, several days after he posted a photo of himself on Instagram in a somewhat lascivious photo with a woman who was not his wife, in which he appeared to be drinking alcohol.
Repeatedly backtracking and switching his position, he failed to put out any coherent statement or argument about his scandals. He had the gall to say that he was being unfairly judged by “self-righteous people.” When forced to resign, he even sued the school for defamation.
Falwell should have known his exposure was inevitable. He should have resigned admitting that he failed to live up his agreement with the Lord, and that the Devil tempted him with liquor and lust. He could have saved a modicum of his reputation, and, perhaps, not have made Liberty University into a joke. By getting out in front of the situation, he also could have better controlled the conversation, instead he was prey to political enemies and religious ones.
As it happens, who can take such a moralizing institution so corrupted by its nominal leader seriously now? Again the academic and religious institution itself, the University, is partially to blame. Negative stories began leaking in 2019, and instead of acting, they let it fester until it rotted.
Shame the Devil
The hypocrisy and wrong-doing and stupidity and foolishness and dishonesty was always there, but now all of society has the ability to see the beliefs and actions professed and the actual actions taken in a type of informational split-screen. The current, and apparent, crisis of our institutions, characterized by loss of faith in them, is a byproduct of being able to see the difference between words and actions in real time, all of the time.
What our institutions now do, too often, is the equivalent of a husband texting his wife “I love you, see you after this baseball game I’m attending with my friends!” while simultaneously livestreaming his lap dance from the strip club on Instagram. It may have worked in the past, but no longer.
The implication of this is not for increased secrecy on the part of institutions or slicker talking points, because this is futile anyway, but rather for increased honesty and transparency. I think some of these people who run these organizations would be shocked at the power and trust they could wield by telling the whole truth, instead of having their messages clouded and hijacked by a ravenous commentariat and disregarded and distrusted by a cynical, overwhelmed, and fearful populace.
There are so many good and necessary things our institutions do, so many good things they represent, that we should not be quick to discard them. By their own failure to recognize that the future will not be like the past, they are condemning themselves to obsolescence even faster than they were heading to the Wikipedia pages of history anyway. The ideals of rule by laws and their equal and objective enforcement, of good sportsmanship and honest competition, of community and morality are by far preferable to rule by force, of cheating to win, and of atomization and selfishness – but that’s where we are headed if our institutions continue to fail to adapt to the demands of the new information environment.
Note on the title: The title is from a line in Shakespeare’s King Henry IV, Part I, where the hotheaded antagonist, Hotspur, makes fun of an ally for claiming he can conjure demons, and even the Devil himself. Hotspur is rather skeptical. Act III, Scene I, Lines 60-65