All is for the Best in the Best of all Possible Worlds

“Pangloss gave instruction in metaphysico-theologico-cosmolo-nigology. He proved admirably that there cannot possibly be an effect without a cause and that in this best of all possible worlds the baron’s castle was the most beautiful of all castles and his wife the best of all possible baronesses.

It is clear, said he, that things cannot be otherwise than they are, for since everything is made to serve an end, everything necessarily serves the best end. Observe: noses were made to support spectacles, hence we have spectacles. Legs, as anyone can plainly see, were made to be breeched, and so we have breeches. . . .

Consequently, those who say everything is well are uttering mere stupidities; they should say everything is for the best.”

(From “Candide: or, All for the Best”, by Voltaire, 1759) (Emphasis added)


Goldilocks is going back for thirds. The beneficent global economic regime we’ve described for the past several months remains solidly in place – global economic growth (especially in manufacturing), strong corporate earnings and revenues, raging equity markets, low interest rates, and an almost frightening level of market complacency.

It seems increasingly probable that Congress will pass some level of tax reform in late 2017 or early 2018, and that will provide a further catalyst to economic growth. Even if the legislation is somewhat pork-flavored and, at the same time, watered down, it should still be stimulative to further economic expansion.

Likewise, the appointment of Jerome Powell seems to be making the markets very happy, given what seems to be his inclination toward following the Janet Yellen slow and steady approach to raising interest rates.

Both wages and inflation are rising, which is positive, and makes the Fed’s decision to raise rates in December a near certainty. Oil prices seemed to have stabilized as well, so while inflation remains somewhat muted given the overall levels of economic growth and low unemployment, the pieces seem to be in place for a future increase in inflation.

The wild cards are as follows: (1) The Fed raising rates in the face of presumptive but no explicit inflationary pressure – will it put the brakes on the expanding economy?; (2) Fiscal stimulus by way of tax reform injected into an already expanding economy – this seems to put fiscal policy and monetary policy into somewhat of a “push-me / pull-you” situation; and (3) exogenous geopolitical events, specifically North Korea. It’s hard to decipher the actions of a madman, and no one should believe they know absolutely what will happen, since anything could, up to and including military conflict. Uncertainty ensues.