What, Me Worry?

“The mind is like a parachute. It doesn’t work unless it’s open.”
– Frank Zappa


As is the case with Evergreen, our partner firm Gavekal encourages an environment of “opinion exchanges”. In the latter case, much of that stems from the inherent philosophical divergences regarding economics and politics between its three co-founders.

Louis and Charles Gave definitely lean more toward the Austrian school of economics. This holds as sacrosanct such factors as sound money policies, moderate regulations, controlled government spending and deficits, and the desirability of allowing markets to freely set prices. To Americans, this would be akin to the supply-side economics paradigm that largely dominated during the 1980s and 1990s but has been in a long eclipse since then.

On the other hand, Anatole Kaletsky, the kal in Gavekal, is a self-avowed Keynesian. While Louis and Charles have been largely appalled by the various extreme monetary measures Western central banks have resorted to over the last dozen years, Anatole has maintained a consistently sunny view of these efforts. And he’s been consistently right—at least as far as financial market performance in the US has been concerned. In other markets, and also in America’s real economy (i.e. Main Street vs Wall Street), the positive consequences of radical monetary policies have been far less discernable.

With many, including this author, believing that the 2020s might turn out similar to the 1970s, in this week’s Gavekal EVA Anatole is making a case that it’s more likely to be a replay of the 1950s. In other words, a decade of low inflation, strong growth and shared prosperity, with Keynesian economic theory once more being the saving grace. (Ironically, it was the 1970s stagflation that was the downfall of the unquestioned supremacy of Keynesianism and, today, as you’ve no doubt read and heard, stagflation fears have become widespread.)

Interestingly, Anatole doesn’t address the fact (at least it’s a fact in my mind) that the US and most other “rich” economies, have moved beyond Lord Keynes’ model of running deficits during recessions, but generating surpluses in good times, and into the brave new world of Modern Monetary Theory (MMT). MMT allows for a level of deficit spending, largely funded by central bank fabricated “money”, that would undoubtedly shock and dismay Lord Keynes himself were he still on this side of the grass. In my view, MMT is to Keynesianism what communism is to socialism–the former being much more radical and dangerous versions of a kindred paradigm.