A Briefing from one of the Generals on America's Economic Front Line
Published on November 24, 2021 By: Thomas Butler
“Fear has a far greater grasp on human action than the impressive weight of historical evidence,” warned legendary economist, Professor Jeremy J. Siegel.
In recent days, I had the great privilege to be among a small group of executives around a conference table with Professor Siegel, discussing his latest economic forecasts and his books including, “The Future for Investors” and “Stocks for the Long Run.” His deep ideas frequently make headlines in media, driving thought leadership on topics of money, investing, and the economy.
Listening to his opinions brought me back to my own college years, as the conversation offered a bright hot spotlight on the economic decisions being made at the federal level and how it impacts the business of those 15 or so New York leaders gathered around the table that morning.
He deftly explains the actions and interplay among the White House, Congress, Treasury, and the Federal Reserve. He made sense of why gas prices are skyrocketing and the stinging impact of inflation over the coming years will have on those on fixed incomes, particularly retirees.
While a long-time faculty member at The Wharton School, earlier in his life and career, Professor Siegel taught alongside and was mentored by the legendary economist and statistician Milton Friedman.
Back when I was working towards a degree in economics, the great guru’s we studied, included Friedman, a free market capitalist out of the “Chicago School” and the Scottish philosopher-economist Adam Smith, who revealed the workings of an “invisible hand” that influences markets via self-interests in his book “Wealth of Nations.” Dr. Siegel, who has lived and worked alongside business and monetary and investing legends, channels these great economic thinkers in his work.
He was effectively the first to predict our current inflationary predicament. He noted back in April 2020, while most were talking about preparing for Covid-related deflation, he was among the few absolutely focused on significantly growth of inflation. As the summer of 2020 went on, he kept adjusting his inflation predictions upward. As anyone over the last six months would tell you, he certainly was right. Inflation is here.
Do you recall last year… when the price of a barrel of oil in the markets was effectively zero? That was when he sounded the alarm to thwart inflation while most were mis-diagnosing the issues. Last week, I felt the pain at the pump when I paid $4 per gallon for gasoline. (Side note: I cannot imagine that Californians are paying over $6 per gallon.)
I was stung again after looking online for new vehicles. A particular dealer somewhere in New England added a $3,000 surcharge to the sticker price of a rather ordinary vehicle, while others asked for even higher premiums for used cars on their lot.
The good doctor showed how the current flood of cash raining down from Washington has led to the largest money supply in the last 150 years (since 1870) for America. This certainly had the effect of priming the pump, among those purchasing homes, businesses, vehicles or investing in the financial markets. On the other hand, Professor Siegel warned of the resulting erosion of value caused by inflation. He calmly suggests that inflation is expected to worsen with “inaction,” creating a further whittling away of all those with a nest egg in cash or without defensive hedge positions in place.
Where this will all lead our nation to, is in the hands of the economists calling the shots. Just this week President Biden reappointed Federal Reserve Chairman Jerome Powell, suggesting “continuity in the markets” according to some news reports. He also appointed economist Lael Brainard as Vice Chairwoman.
Given all the critical economic decision making for our nation and economy that is at the doorstep of economists and politicians, having the opportunity to see through Professor Siegel’s economic crystal ball of what the future holds, was a truly fascinating experience.