Wayne's World

 

You may have followed the peregrinations of Wayne Angell, an ex-governor of the Fed. Mr. Angell resigned from the Fed some months ago in order, arguably, to capitalize on the connections and PR mileage he accumulated in his prior capacity. He's now employed by the brokerage of Bear, Steams & Co. as their chief economist, certainly for a salary well into seven figures.

As you know, I have almost no respect for employees of central banks, government economic agencies, quasi-government financing authorities like the IMF and the World Bank, or establishment economists in general. They're almost exclusively political hacks who could just as easily have gone to work for the Post Office, except they logged time getting a higher degree, like the idea of flying first class at others' expense, and think being a big shot is their birthright. I don't know Mr. Angell, but why should he be any different'? In fact, why does anybody, including Bear Steams, care what he thinks?

I really hate to make what seems like an ad hominem attack on someone else in my line of work. My usual feeling is that if I don't like someone's work, it's better to just disregard it, as opposed to making a potential enemy and seeming like a grousing critic. But I've got to say something about Angell (like Dr. Doom), because he's become something of an icon among many who are sympathetic to gold, free markets, and such.

That's entirely apart from the fact that Mr. Angell represents the revolving door between government and industry, something I thoroughly despise. A nothing/nobody in government gets a multi-million dollar job with a big corporation or law firm because he fought his way into being a high official. A corporate type goes into government to feed power and giant contracts back to his buddies in business. The average guy pays for all this nonsense with his taxes and, perversely, pays respect to the corrupt nomenklatura because they're rich and famous.

 

The Fed governor as Bozo

I read several issues of Angell's Global Spectator (distributed to Bear's institutional clients) and was overcome by their pedestrianism, lack of insight, inanity, and profusion of misconceptions. Otherwise, the turgid publication mostly regurgitates Greenspan's recent statements, interspersed with a few commonly available government statistics. If Angell actually knows anything worth telling, either he doesn't understand its value or Bear's lawyers are making him button his lip. But this guy is the hot economist of the moment, which really speaks poorly of the state of the profession, as well as the credulity of the public. Let's let Wayne speak for himself.

(8/12/94) "Today, Governor LaWare said that 'we're probably right on the threshold of the natural rate of unemployment.' " Wayne doesn't question the fact that the so-called "natural rate of unemployment" (arbitrarily said to be 6%) is a fiction that doesn't exist in the real world. If there is such a thing as a natural rate of unemployment, it's likely zero, since every person on the planet has an unlimited desire for goods and services that the unemployed couldn't fill even if they worked 24 hours a day. It's only a question of what wage they're willing to work for. Wayne is an unquestioning consumer of conventional wisdom - but what do you expect for seven figures a year?

Another example of this is his statement (8/12/94) that "In June and July, the economy created 615,000 non-farm jobs," as if the figure was handed down by God. All the businessmen I talk to are doing their best to get rid of workers; and entrepreneurs who've been around the block avoid employees at any cost. The reason is that employees, in the current environment, aren't assets, they're mostly liabilities (e.g. workers comp and unemployment insurance) and potential lawsuits (take your choice of laws "protecting" the handicapped, the sexually harassed, minorities, etc.). That's all another story, of course, but not one Wayne is likely to deal with.

Likewise his statement "recent consumer price increases have been constrained by the housing component of the CPI. This index, which constitutes over 41 % of the CPI has risen at only a 2% pace in the last three months. Excluding housing, the CPI is running above 4% in the most recent three month period." I don't know about Wayne, but taxes are the biggest component in the CPI of everyone I know, with Social Security (15% approx.). Federal (40%), and State (8% avg.) income levies alone running over 50%. Then add on gasoline, sales. excise, luxury, licensing, use "fees," and a thousand others. Even forgetting about taxes, isn't the 41% housing component up for question; who pays 41% of their income on housing-related items anyway? Economists, as opposed to political apologists, should question, not just regurgitate, numbers cranked out by nameless bureaucracies.

What kind of an economist confuses cause and effect without a thought? I'd say a thoughtless one. Wayne says (8/12/94) "Purchases of autos have likely been constrained by a shortage of inventory. In July, inventories on dealer lots had dropped to 55 days of sales. Reflecting the shortage of new cars, used car prices have risen sharply over the last three months, rising at an 11.5 % rate." Shortage of inventory? Wayne seems ignorant that few dealers want to keep even 30 days inventory on hand (it has to be insured, stored, and financed), not to mention 55 days. He doesn't seem to have heard about "just in time" inventory methods, either. But he's so disconnected from the real world that he's unaware that people don't buy used cars because they can't get delivery of a new one; they buy used cars because they're cheaper, and they can't afford a new one. An economist is supposed to describe the way the world works, which implies some firsthand knowledge of it. But this guy is like George Bush, who apparently hadn't visited a retail store since before he got a job with the government.

His arguments are often inane: (8/5/94) "Average earnings advanced by 0.4% in July, and have risen by 2.8% over the last 12 months. The rise in earnings and hours worked in July will translate to a robust rise in personal income." 2.8% doesn't even equal inflation. Wayne must be confusing his own "robust" increase in personal income, since he went to work for Bear, with the average guy, whose figures show he is still losing ground.

Or just dumb: (8/l/94) "Moreover, since we do not think that Washington is truly downsizing its spending appetite, we are projecting some rebound in Federal spending in the second half." "Truly downsizing?" What planet does this guy live on'?

So why is Wayne held in high regard by the media? The one thing that distinguishes Angell is that he has respect for gold (as does, apparently, Greenspan). He does appear to understand the metal's function in preventing governments from creating currency promiscuously, recognizing they won't be able to make good on promises to redeem it if they do. The thought of gold actually being used as money, thereby cutting out the middleman, doesn't seem to occur to him, however.

His idea of a cosmic breakthrough (and the one that's gotten him most of his press coverage) is that gold prices are the best predictor of inflation. It's this observation that endears him to hard money types, and makes the typical financial reporter think Angell is probing the frontiers of the economic world - when only a few generations ago, any first-year home economics student would have disregarded the observation as a commonplace of marginal validity. He dazzles the hoi polloi by trotting out a suitably complicated regression formula (PGDP4=-5.05+0.023*GOLD-4) to "prove" it.

Of course there's a correlation between gold prices and inflation, but poor Wayne seems to think it's mathematically precise. He bottom lines it by saying "as rough rule of thumb, $10 an ounce increase in the price of gold points to a two-tenths of a percentage point rise in the inflation rate."

It's nice that Wayne sees that gold, currency, and inflation are all related, even if he can't figure out how. He seems to think the world still revolves around the U.S. dollar. Even if prices were stable in the U.S., gold could move up big time in response to buying from other parts of the planet. He doesn't credit gold as a chaos hedge (as much as an inflation hedge) in his bizarre formula. Nor does he acknowledge that the gold price is ultimately determined by the number of U.S. dollars outstanding relative to the amount of gold the U.S. government owns, not by small increases in the money supply.

People buy all this claptrap because Angell was on the Fed, and close to Greenspan. To think that people like this are controlling the economic fate of the world. And now even much worse, judging by what is known of his replacement.

It's small consolation that the SEC is apparently investigating Wayne for some conflict of interest. In a way, it's gratifying to see the government cat its own. But in the end, they'll wind up eating all of us.