The Boundless Foolishness Underlying ‘Soft Landing’ Mythology

It’s estimated that The Public Investment Fund (Saudi Arabia’s sovereign investment fund) has $776 billion in total assets. $35 billion of that wealth is estimated to have found its way to the U.S.

This minor anecdote is yet another reminder that the Federal Reserve’s power to control the flow of dollars stateside is wholly theoretical. Repeat it over and over again: the only “closed economy” is the world economy. The Fed can neither take away nor put out the proverbial “punch bowl” in light of the happy truth that credit is produced globally, and flows at the click of a mouse globally. Much of it plainly finds its way to the United States, and without regard to the Fed’s wishes.

It’s something to keep in mind with all the talk about “soft landings” among economists, pundits, and media members. Former Jerome Powell adviser Antulio Bomfim recently told the Wall Street Journal’s Nick Timiraos that “You need a lot of luck” to stick “soft landings,” while BCA Research’s Peter Berezin expressed skepticism to Timiraos that the Fed “could stick the landing for very long.” One hopes Timiraos reported these utterances with a wink…

First of all, consider the Fed’s track record on the matter of economic forecasts. To say it’s been pitiful is a waste of words, as would it be a waste of words to say that the Fed’s poor forecasting record is a statement of the obvious. The reality is that any country “economy” gains a great deal of its vitality (or lack of same) from infinite happenings around the world, at which point any forecast of that which is informed by the doings of billions of people, machines, foreign policies, and weather the world over is naturally going to come up well short. It’s not just that Fed economists are unequal to the measuring of that which is so dynamic, it’s that all economists are.

For economists, pundits and media members to then speculate on the ability of central bankers to engineer “soft landings” truly beggars belief. It raises questions about Timiraos, Jeanna Smialek at the New York Times
NYT
, and other Fed watchers. Most economists or political economists will take their calls and talk at length, but has it ever occurred to those charged with reporting on the Fed to express even a hint of skepticism about the boundless conceit of central bankers presuming to engineer a “soft landing” in the first place? Put another way, why aren’t Fed reporters trained to raise their eyebrows raising their eyebrows?

The question rates answers with the 20^th century well in mind. It’s possible neither Timiraos nor Smialek are old enough to remember it, but central planning was a murderous failure. Yes, another statement of the obvious. For economists to then pretend that by fiddling with interest rates and so-called “money supply” that they can engineer a faster economy or a “Goldilocks economy” or a “soft landing” brings all new meaning to delusional. No, they can’t. Wasting more words, central planning doesn’t work and it never has. “Soft landings” are an impossibility, period.

Better yet, they’re needless. Implicit in “soft landing” mythology is that growing economies result in higher prices. No, quite the opposite. Investment flows that the Fed once again can’t control are all about discovering novel ways of working and producing so that exponentially more can be produced with exponentially less. Translated, the surest sign of booming growth is falling, not rising prices.

Not only is the notion of a “soft landing” a false one of the Unicorn variety, it misunderstands what drives prices lower. In another life, economists and those who report on them will understand this.