The Federal Reserve last week signaled that interest rates are "just below" a "neutral level," which is their code for the right interest rate to achieve the Fed's two current goals: full employment and 2% inflation. JAM Views believes there is not sufficient empirical evidence that a 2% inflation target is necessary, much less not detrimental, but we will address that in another Post. For now, the financial markets rallied in the belief that The Fed will not need to "take away the punch bowl" from the current strong economy and jobs growth.
What's most telling is that success begets success, increases optimism, and opens our eyes to what is possible. I heard Larry Kudlow, the President's Economic Advisor, speaking recently on the John Bachelor Show, and Larry said that we really should be creating 6% to 8% GDP growth rates in this country. I chuckled thinking that Larry must be reading JAM Views!
Prior to this Administration's aggressive efforts to cut tax rates, cut regulations, and jumpstart GDP growth, what did the elites tell us for a decade? They asserted on every talk show that 1) we cannot grow the workforce because we are at "maximum participation rate" (the % of Americans who are able or willing to work), 2) we will not achieve more productivity growth expansion because we have maxed out technology's impact, and 3) we will never again achieve a GDP growth rate above 2% because of the demographics of our country.
Well as for participation, Americans have been rushing back into the job market since, recently, having a job has become much more appealing, and companies have been able to offer many more of these appealing jobs. The previous "facts" that we blindly accepted on the talk shows have been proven false. The Fed also pointed out "there may still be some further room for participation." Women of prime working age and men ages 25-34 are rushing back into the job market, but still at percentage levels below year 2000. If we see entitlements and benefits soon require more work or training mandates, we will see these percentages rise even further. But, didn't they say this was impossible?
As for productivity growth, The Fed stated that productivity is growing at 2% this year as compared to the previous decade average under 1%. Productivity growth means that, due to positive technology enhancements or less regulatory overhead and bureaucracy, each worker is free to produce more output inside the same work hour. Therefore, there is not higher wage cost for more output, and thus not inflationary but actually working against inflation. This means companies can actually pay workers more per hour without raising the end price of the product for the American consumer. But, didn't they say these gains were impossible?
And, of course, they said on every Sunday morning talk show that growth rates above 2% for our country were now impossible. Those growth days were over. What is truly sad is that most of the country believed them, and lined up excuse after excuse for our lack of exceptionalism. They rolled it right into the apology tours. To borrow some descriptions from Supreme Court Justice Kavanaugh, this "grotesque and coordinated" manipulation was "a national disgrace." Now, our growth is 50% to 100% greater and capable of going much higher if the collectivists and looters don't put on the breaks. Unfortunately, history repeatedly proves that the great majority of humans prefer excuses over sticking their necks out for overachievement. And, the humans will do everything possible to crucify the ones who prove their prior excuses were simply lies.
I recruited Lyle to join our company from Morgan Stanley in hopes that he would be a positive mentor for our younger financial advisors. But, I soon discovered that he had an excuse every month for why targets were missed and deadlines were pushed back. Soon, his underachievement began to alienate the A-Players and even create a small sub-culture of C-Players. You all know the employee. His worldview infected others around him to have them also believe that our strong performance was not sustainable, and that we should be more "realistic." Following GE CEO Jack Welch's advice, I eventually encouraged Lyle to spin off a small practice on his own, away from our growing enterprise, but unfortunately not before his negative ideology affected many in the organization. I should have made the change much earlier.
For recorded history, no one had ever broken the 4-minute mile barrier until May 6, 1954, when Roger Bannister ran a 3:59 mile in Oxford, England. Then, less than six weeks later, a blink in time, Australian John Landy ran a 3:58 mile. Six weeks later in Canada, both men ran sub-4-minute miles in the same race, and the idea quickly spread throughout the world with tens, then hundreds, of runners breaking this unbreakable human barrier. The mind now believed it was possible.
In economics and business, just like in everything else, we create what we believe is possible. Optimism and exceptionalism are what true Americans believe. We always have. Stay guarded and mentally strong, and don't let the underachievers convince you that success is not possible, or even probable. Asset prices, such as the stock market or home values, will fluctuate greatly, and the economy will go through its natural booms and recessions, but never let the Government tell you that great success is not possible. Educate your mind and strengthen your resolve.
"We often decide that an outcome is extremely unlikely or impossible, because we are unable to imagine any chain of events that could cause it to occur. The defect, often, is in our imagination." - Amos Tversky