About that 2016 recession, and our elitist media
Here’s a prediction made back in January:
Based on today’s GDP release, it appears that the US economy is slowing but not near any sort of massive collapse.
Peter Schiff begs to differ.
The CEO and chief global strategist for Euro Pacific Capital, and noted perma-bear, said that serious economic destruction is just a few months away.
“I think the Fed is going to have negative interest rates before the election because we’re going to be in a serious recession,” Schiff told Business Insider on Friday.
In fact, Schiff said that we may already be in recession and this one is going to be a doozy.
“We’re in worse shape now than we were in 2007,” he said.
And here’s a prediction from early 2012:
While Bernanke delivered calm to bond markets on Monday in a speech that promised “continued accommodative policies,” the violence of the sell-off speaks to Schiff’s argument. “We consume more than we produce and we borrow abroad, but we are never going to be able to pay them back,” says Schiff.
The controversial investor and commentator expects a massive crash over the next two to three years as a bond market bubble, coupled with the U.S. dollar, collapses under the weight of excessive debt. Schiff, like PIMCO’s Bill Gross, doesn’t believe in the current deleveraging cycle. While households have reduced their leverage, government debt has ballooned on the back of stimulus programs, but, argued Schiff, the government’s debt is the people’s debt, thus overall leverage has actually increased.
If you google Peter Schiff, it’s gloom and doom all the time. Even worse, when I debated him a few years ago he turned out to be one of those conspiracy theorists who thinks inflation is far higher than the government claims, which of course implies RGDP growth has been negative since 2009, despite roughly 200,000 new jobs every month. So why does anyone pay attention to him? I suppose some would claim that he predicted the 2008 recession. But if you are predicting recessions over and over again, then it stands to reason that when a recession does occur you will have predicted it. So that doesn’t answer my question.
Some will claim that I’m being an elitist, insisting that the press only pay attention to credentialed economists. Actually, I don’t have any problem with the press paying attention to well-informed people, even if not an economist. Matt Yglesias often has good posts on the economy. Interview him instead of Schiff.
I think it’s the press that is being elitist. Economics reporters are in awe of wealthy people in business and finance (but not entertainment), and think they are a good source of ideas. But they are not. It’s elitist to think that Schiff’s comments are worth reporting while my plumber’s are not worth reporting. I’m sure there are 1000s of plumbers who “predicted” the 2008 recession. So why not interview them? Is it just because they are not rich? Isn’t that elitist? And why not interview LeBron James on the economy? He’s rich. Isn’t it elitist to assume that Schiff knows more business cycle theory than James? (I’d guess that neither knows any business cycle theory). Or how about a guy who owns a 7/11 store? The press is simply not interested. A union leader? Not interested. You need to be rich and in business or finance. Business and finance have absolutely nothing to do with economics, but most reporters don’t seem to know that.
(I think this is part of the reason Trump was successful.)
So am I saying that the press should just completely stop reporting what Peter Schiff has to say?
Yes, I am. It’s elitist to give rich people like him a mouthpiece. I’m not saying that only experts should be interviewed—it’s fine to interview the average man on the street. But Schiff is not the average man on the street. He’s not average and he’s not an expert. So what is he?
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15. January 2017 at 07:49
People still listen to Schiff? After he’s shown to be a fraud about 9 years in a row?
15. January 2017 at 08:43
Among people who have opinions on the economy, successful businessmen have been elevated to elite status by the press, because, as you remark: “Business and finance have absolutely nothing to do with economics, but most reporters don’t seem to know that.” However, it is futile to complain about the press, because most *readers* don’t know that, either. The public wants to hear what people like Peter Schiff (though not LeBron James or your plumber) think about the economy, and the press is going to give its readers what they want.
15. January 2017 at 09:59
Scott,
In the spirit of Cowen’s recent article suggesting those against Trump should short the market or buy VIX, I would be interested to hear what prediction market question you would have created pre-election to best measure the the downside of Trump’s presidency.
https://www.bloomberg.com/view/articles/2017-01-11/trump-doomsayers-miss-a-money-making-opportunity
15. January 2017 at 10:24
Confirmation bias.
15. January 2017 at 10:26
Philo, Yes, it’s futile, but it feels good.
Cameron, With Trump I worry more about “tail risk”, so I don’t think shorting the market is the best way to profit from Trump. (An extreme example is nuclear war, and just to be clear, I think that’s extremely unlikely even with Trump, albeit slightly more likely.)
I suppose someone could have made money shorting the peso.
Some of the other things I worry about (the racism, the anti-immigration position, the possible protectionism), are not likely to have much market impact. I have no idea what he thinks of monetary policy. Tax cuts and deregulation might help the market.
Short answer, I don’t have a good answer for your question. I did a post on this a while back, I think it was before the election. I said I didn’t expect a big market impact. The recent increase was more than I expected. But then the market skyrocketed under Obama, and I don’t think anyone seriously thinks that was all a response to Obama’s policies.
15. January 2017 at 10:37
Regarding Trump’s ‘racism’, let’s check in with Shelby Steele;
http://www.papermag.com/shelby-steele-political-correctness-2190242561.html
—————quote—————
One of the points that I feel very strongly about, coming as a black [man], is that the deference that America has shown us since the ’60s with the War on Poverty and the Great Society and welfare, these deferential policies that defer to our history of victimization now victimize us more than racism did. I grew up in segregation. I know exactly what it’s like. And I had a more positive attitude toward America than many blacks do today who are the beneficiaries of Affirmative Action. I think that deference has become a very corrupting influence on the people that it tries to help. It’s honorable that it wants to help these people but they never ask the people to be responsible for their own transformation and uplift and that’s the great tragedy of deference and political correctness.
As I said in a [recent Wall Street Journal] article, political correctness is just the codification of deference…As blacks, we live in a society that keeps trying now to help us and to redeem itself through us. And that just pushes us into a symbiotic relationship with white America. We become their poster boy for redemption… It’s now begun to hurt the fabric of American life. I think this past election is about that. Americans are saying, among other things, “We’re tired of this. We know something’s wrong. We may not know what it is but something’s wrong.”
The history of America has accused [white people] of the evil of bigotry. And so white Americans are insanely sensitive to being seen as racists or, to a lesser degree, sexists. And so this hyperbolic political correctness that we’ve descended into has to do with this neurotic response. But when people are living under that kind of threat of stigmatization, they don’t even see the people they’re trying to help. White people don’t even see blacks. Political correctness is utterly and completely blind to the humanity of black America.
—————endquote————–
15. January 2017 at 10:47
“despite roughly 200,000 new jobs every month”
That is a conspiracy theory.
In fact, 94% of these “new jobs” are in the “alternative” category, meaning part time and contract work.
The number of people who have left the workforce massively outweigh the number of full time jobs created.
Yes, inflation is underreported. We can see this is the statistics, in how it is calculated. No conspiracy theory necessary.
15. January 2017 at 11:04
“A union leader? Not interested. You need to be rich and in business or finance. Business and finance have absolutely nothing to do with economics, but most reporters don’t seem to know that.
(I think this is part of the reason Trump was successful.)
So am I saying that the press should just completely stop reporting what Peter Schiff has to say?
Yes, I am.”
-All correct; all true. The press should interview a lot more ordinary people about the economy and a lot fewer persons wrong a dozen times. Trump did, in fact, win because people thought he was best on the economy and the deficit of all the candidates, despite the lack of evidence for this.
“Cameron, With Trump I worry more about “tail risk”, so I don’t think shorting the market is the best way to profit from Trump. (An extreme example is nuclear war, and just to be clear, I think that’s extremely unlikely even with Trump, albeit slightly more likely.)
I suppose someone could have made money shorting the peso.
Some of the other things I worry about (the racism, the anti-immigration position, the possible protectionism), are not likely to have much market impact. I have no idea what he thinks of monetary policy. Tax cuts and deregulation might help the market.
Short answer, I don’t have a good answer for your question. I did a post on this a while back, I think it was before the election. I said I didn’t expect a big market impact. The recent increase was more than I expected. But then the market skyrocketed under Obama, and I don’t think anyone seriously thinks that was all a response to Obama’s policies.”
-All this is nonsense. Trump’s win reduces tail risk, including the risk of nuclear war. Trump did not run on racism.
15. January 2017 at 11:07
Major, you are wrong on all counts. I doubt Philo is correct; most people don’t want to hear the predictions of people wrong a thousand times.
15. January 2017 at 13:07
I have said this before, too many businessmen can’t see the forest for the trees.
I fear that Trump’s appointments to the Fed will be businessmen with little understanding of monetary policy.
15. January 2017 at 13:07
Trump May Herald a New Political Order
15. January 2017 at 13:12
Oops! That headline above is from John Steele Gordon’s WSJ opinion piece;
http://www.wsj.com/articles/trump-may-herald-a-new-political-order-1484353383
in which he points out that Hillary’s 2.9 million vote majority comes almost entirely from 4 boroughs of NYC–she lost Staten Island–and Los Angeles County. Trump won the rest of the country, and the Electoral College save the rest of us from being ruled by Meryl Streep’s candidate.
Those Founding Fathers knew what they were doing!
15. January 2017 at 13:22
Scott wrote:
“Matt Yglesias often has good posts on the economy. Interview him instead of Schiff.”
But Scott, that’s a different criterion. You’ve pointed out that Schiff was wrong about an impending recession, and pointed out to two failed predictions. Then, to show us that Yglesias is superior, you merely say Yglesias often has good economic posts.
So are you saying I couldn’t find two really bad Yglesias predictions going back to 2012? Here’s one that became notorious in punditry circles (where he said the rollout of the ObamaCare exchanges was going to be great–and he laid down a marker, too, to emphasize how sure he was).
Or here’s Yglesias warning us how severe the budget sequester would be on the economy.
Or, are you saying Peter Schiff never has anything interesting to say about the economy?
15. January 2017 at 15:31
Matt Yglesias supported Trump in the primaries because Rubio was too dangerous–basically Matty held the same position as Harding.
Peter Schiff has been a laughingstock for a long time. But the media likes giving him airtime, because he is willing to go on TV on slow news days and scream gloom at the top of his lungs. Media like people who are useful for narrative construction and narrative framing.
By debating Schiff on intellectual terms you are failing to understand what motivates the media, and how media in this country competes for eyeballs.
15. January 2017 at 15:35
Exclude 5 of the biggest counties and Trump has a majority? Exclude any 1 county in the country and Clinton has a majority.
15. January 2017 at 16:35
I agree that discredited fearmongers in macronomics (and national security) should be identified as such in news copy.
However, if Peter Schiff has a following, then his commentary is news by that standard.
The majority of orthodox macroeconomists thought the Fed was too loose after 2008 and many predicted hyperinflation.
The roll-call of discredited orthodox macroeconomic observers is a long one.
I wish Lord Adair Turner got more ink….
15. January 2017 at 18:20
E. Harding,
No, that is right on all counts, thanks.
15. January 2017 at 18:59
No, wrong. Give FRED graphs to show otherwise.
15. January 2017 at 21:03
Elementary school days, I had to do kicking stones on the way home
16. January 2017 at 05:46
The press has an equally biased view of academia members as “experts”. The difference between an academic “expert” and a businessman is that if an academic “expert” says something foolish nothing happens and people usually forget. If a business man says and DOES something foolish he goes bankrupt, or at least loses a lot of money. Schiff is a broker, his business is TO BE in the media an generate flow, so, it doesn’t matter what he says as long as clients keep coming …
16. January 2017 at 06:51
The false equivalency in these comments is amazing. If person A is wrong 95% of the time and person B is wrong 5% of the time, then neither can be trusted.
Not just Schiff, but there were hundreds of false predictions of runaway inflation and interest rates after 2009. There are so many other false predictions.
The “experts,” for all their faults, are more right than others. The Fed meetings can actually track quantitatively how the various experts do in their predictions. Yellen and Bernanke consistently did better than the regional chiefs who came from a banking background.
16. January 2017 at 13:37
Patrick, You mean one can’t be a strong opponent of PCism, and also think Trump is a racist? Then I guess I do not exit.
You said:
“in which he points out that Hillary’s 2.9 million vote majority comes almost entirely from 4 boroughs of NYC–she lost Staten Island–and Los Angeles County.”
So you think Americans surrounded by lots of land are more important than Americans living in dense areas? Why not just admit that Hillary got almost 3 million more votes than Trump? Polls show she’s more popular than Trump. The election confirmed her popularity. Period, end of story.
Bob, You said:
“Or, are you saying Peter Schiff never has anything interesting to say about the economy?”
Now you are just trolling. I hope you know what I meant. The alternative is too depressing to contemplate.
16. January 2017 at 14:35
Dr. Sumner,
The origin of my username involves Peter Schiff. If I’m not mistaken, a video I posted a few years ago yielded more views than any other featuring you. That includes uploads of your RT appearances. Here is the link:
https://www.youtube.com/watch?v=_b4_KuC1-sQ
You did a great job of taking down Schiff that day.
In my own small way, I tried to help you get your message across. It’s perhaps sad that I know how to get more Youtube views on specific videos than RT.
16. January 2017 at 14:50
Dr. Murphy,
With respect, Peter Schiff has been wrong about everything for about 20 years, at least. I have been following him very closely for a long time.
He claims, for example, to have predicted the rise of gold prices during the 2000s, both before and after the Great Recession. However, the reasons he claimed gold would rise in price before the Great Recession were all wrong. He claimed that hidden inflation would cause gold prices to rise. But, gold prices don’t move with inflation, but instead with prospects for negative real interest rates and also retail and industrial demand. The largest factor behind the increase in gold prices before the Great Recession was the rising demand from a rapidly developing Asia, versus supply.
This is important, because Schiff also claims to have predicted the 2008 financial crisis, but he said it would be a hyperinflationary crisis, in which gold prices would go through the roof, the dollar would collapse, and there would be “decoupling”. Decoupling meant that the US economy would go down the tubes without bringing many countries abroad down with it.
Obviously, all of this was wrong, and anyone who understood any of the basics of economics knew it was absurd. Instead, during the financial crisis, the dollar soared, gold prices fell sharply, and much of the rest of the world was hit as hard or harder than the US. And, of course, there’s the problem that Schiff never put a date on his prediction of doom, the qualities of which he got very wrong.
Being right for the wrong reason is being wrong, period.
Eventually, gold prices did rise and the dollar spike subsided, but that was after the Fed ramped up monetary policy during the crisis. Gold prices and the dollar spike occurred during the spike in real interest rates.
It was the Fed easing programs that took real interest rates negative that led to the gold price rise and fall in the dollar.
It was also those programs that reliably squeezed the credit spreads in the bond market. Schiff said we’d have a massive public and private debt crisis. We had no such thing. In fact, going on 9 years later, Treasury rates are still at historic lows, and while risk spreads in the bond market aren’t where I’d like them to be, they’ve been nowhere near crisis levels in years.
Are you going to defend Schiff here, Dr. Murphy?
16. January 2017 at 19:52
‘So you think Americans surrounded by lots of land are more important than Americans living in dense areas? Why not just admit that Hillary got almost 3 million more votes than Trump? Polls show she’s more popular than Trump. The election confirmed her popularity. Period, end of story.’
She’s only more popular than Trump in a few locales; saltwater taffy. Why are those Americans more important than freshwater types?
As I said, the Founding Fathers foresaw this type of problem–at the time, Virginia and Massachusetts–and came up with a solution; the Electoral College. It worked as it was supposed to.
17. January 2017 at 17:04
AntiSchiff, Thanks for that info. I agree, the comparison with Yglesias was just totally nuts.
Patrick, You said:
“She’s only more popular than Trump in a few locales; saltwater taffy. Why are those Americans more important than freshwater types?”
It doesn’t matter what trees think, or what lakes think or what swamps think, or what “locales” think. Popularity depends on what people think.
The Founders foolishly based the system on Electoral votes, but that’s not a measure of popularity. Popularity is about people, one man one vote.