Government Conspiracies and Your Money
At “A Dash” we are amazed almost daily by the haughty and high-handed disrespect from Wall Street when it comes to the everyday workings of government. So many powerful voices are so confident, and simultaneously so wrong. This is typical when an expert switches subjects from something he really knows about– stocks, trading, technical analysis, etc.– to something he knows nothing about.
CNBC stimulates this with their “guest hosts” who are encouraged to offer an opinion on whatever topic comes up that hour. Of course, some of their journalists are already participating in that way. Looking to the frequently-cited wise men, Jonathan Berr runs down a short list, but there are many more good candidates.
When we see the errors, it is a “kid in a candy store” feeling. Start with a bunch of traders, fund managers, and lawyers. None has ever developed a quantitative model, and many cannot construct or interpret simple tables or regressions with statistical controls. They have not taken (or do not remember) the beginning classes in government, economics, statistics, or research methods.
These pseudo-experts cite actual data, developed with great care by the strongest experts, as “a work of fiction.” As if they knew the difference! Why? Two reasons.
First, they do not like the result they see. It does not agree with their own daily experience. They confuse their own compartmentalized view of the world with reality. It is also a message they can sell to their audience, often a niche group who share their world view.
Second, diminishing the real experts increases the influence of the pretenders. If these powerful voices can convince most to ignore data, then anecdotal evidence rules. It is an alternate data universe.
And the pseudo-expert is also the master of the anecdote.
The most prominent media voices support them. Why? It is a good story. There are very few who choose to educate readers rather than to play to their existing biases. It is a good business model. Readers can understand anecdotes, but not statistical methods.
There is a symbiotic relationship between media and the pseudo-expert community.
Taken to the extreme, the pseudo-expert actually suggests that “government” is acting in a conspiratorial fashion. It is pretty easy to recognize such superficial analysis. It is the work of people who have seen too many movies and read too few books.
The biggest red flag? Look for those who discuss the U.S. “government” as if it were a unitary actor. This is seen only in a ruthless dictatorship with a small inner circle. Those who conclude, for example, that the President is “cooking the books” on inflation or employment data make this mistake. They do not understand that the actual work is being done by a non-partisan senior executive service. (Those interested in how government decisions are actually made should consult our summary article.)
A Failed Conspiracy
Actually, conspiratorial moves are rare and for good reason. Even closely held secrets, like the original Watergate plan, have a way of leaking out. The recent suppression of the global warming report provides a nice example. Menzie Chinn at Econbrowser, one of our featured sites, discusses the report that the Bush Administration thought was too dangerous to release, now available after four years.
This Washington Post article shows what happens when the echelon of political appointees tries to tamper with the work of those who serve government regardless of the party in power.
This is an important example to remember the next time someone is selling a conspiracy theory that you should not be buying.
One of the strongest things an investor can do is to discover information that is poorly understood or appreciated by everyone else. It is especially ironic that the commonplace viewpoint is offered as “contrarian” by those taking it!
Briefly put, one can gain an investment advantage simply by identifying and believing information from the real experts on various economic topics. How simple!
Where to start? Here’s a hint. The “government” as represented by the diverse Congressional and bureaucratic interests has no unified position about the measurement of inflation. Many members of Congress, for example, would like to increase Social Security benefits and labor cost-of-living increases. Many people decide to collect their social security benefits once they have hit the age of retirement, so they are able to afford the luxuries that this time in their lives can bring. Some even decide to work longer to ensure that they have the highest payout. Places similar to simplywise.com can help you to determine what you are eligible for and when and can help you to live comfortably on the money that you have spent so long saving for. But if Congress is looking to increase these benefits, it could be a win-win. They would be happy to see inflation measurements that would aid these constituent groups. The BLS employees have tenure and are not subject to political pressure.
Big-name fund managers like Bill Gross have a strong financial interest in public perception of inflation and the economy. Like any smart manager, he talks his book. Should you be listening?
More later on Bill Gross versus the BLS, now in its fifth year, but still playing on a blog or TV station near you.