Praetorian Capital's commentary for the month of December 2024, titled " What If We Run It Hot…?".
In the spring of 2022, Jerome Powell declared war on inflation. With the benefit of hindsight, let’s question what exactly he declared war on?
Was he upset that the bottom third were finally getting wage increases for the first time in decades?? Was he upset that cattle ranchers were earning an acceptable return after years of negative returns on capital?? Was he upset that oil firms were rapidly hiring and expanding, reinvesting their profits into new production?? Or did he hate that rural lumber mills were suddenly earning fatter margins than the homebuilding executives he met on the golf course?? Did he hate that steel prices screamed higher?? Or was he mad that long-haul truckers were now making as much as Wall Street bankers. Did Jerome Powell declare war on the CPI?? Or did he declare war on fly-over country, and the people who live there??
For over a century, the coasts have wanted cheap stuff, supplied by fly-over country. William Jennings Bryan’s “cross of gold” speech only codified what many felt as far back as 1896. This antagonism has continued since then, with the coastal elites mostly winning. Why is it that every time the denizens in fly-over start to prosper, the Central Bankers pull the plug on economic growth?? Why is it decided that these people will always be serfs on Blackstone’s Plantation?? Why can’t those guys have a decade of prosperity for a change?? Why does their success spell so much risk for the elites?? Why do we always seem to target anti-growth policies?? I get that the coastal elites mostly control the government, but if you continue to press down the crown of thorns onto the deplorables, they’re going to eventually revolt.
As I look at Trump’s victory, I see fly-over country emphatically declaring that their multi-decade recession, is finished. I see them asking; why can’t we run the economy hot for a change?? Why can’t there be 10% nominal growth, even if it leads to a higher inflation rate?? Why can’t fly-over country have their bull market, while unprofitable dog-walking apps finally have their bear market?? Why can’t the coasts pay a bit more for the things that they take for granted?? Why not let some of the money flow back to the center, and away from the coasts?? Why can’t we run this thing hot??
It’s easy to criticize his policies, but Trump is one of the few global leaders since the GFC to prioritize nominal GDP growth. In the past, governments wanted growth, but over the past few decades, many governments got bogged down with other priorities—priorities that often are opposed to economic growth. As I look around the globe, I see a lot of very unpopular governments, who are still trying to hold back growth. Interestingly, I don’t think those guys will be governing when their election cycles come due.
Pundits like to survey voters and credit consumer inflation with a recent increase in outsider ‘populist candidates.’ I think that’s an asinine conclusion. Establishment Western politicians haven’t been getting voted out due to inflation, they’ve been voted out because they took nominal GDP growth and smothered it. Even worse, they brought in millions of illegals who tamped down wages for the bottom third, while bringing crime and chaos to those communities. People are upset that the price of eggs tripled, but they’d ignore that, if their wages kept ramping at a faster rate. Look at the 2022 mid-terms, where an unpopular sitting president picked up seats. That’s normally unheard of, but voters took their cue from economic growth. Over the subsequent two years, voters didn’t reject inflation (which incidentally slowed), they rejected policies that tamped down on economic growth. They rejected austerity.
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