By Chas Craig
BridgeTower Media Newswires
“Action expresses priorities.” – Mohandas Gandhi
This column breaks from the usual practice of commenting on some capital markets-related issue with some practical investment implications to comment broadly on public policy priorities. To simplify, for this thought experiment you must put aside opinions about the appropriateness or inappropriateness of balanced budgets and under what conditions. For our purposes, deficit spending of a certain dollar amount by the federal government is assumed to occur. It is simply a question of how it is spent.
In two recent columns entitled “The Dunning-Kruger Effect” and “Bubble Prerequisites,” I discussed several corners of capital markets where the speculative mood seems elevated such as meme stocks (e.g. GameStop Corp.), SPACs and cryptocurrencies. The mere presence of what appear to plainly be speculative orgies is a sign of redundant capital in our capitalist system. In this writer’s view, it is a bad look for our society for this sort of thing to be occurring, aided in part by government stimulus payments, at the same time our public infrastructure situation is clearly in need of significant upgrading.
The point of this column is not to second-guess the government’s response to the economic impacts of the pandemic. I believe our leaders did their collective best to save our civilization, and it is unfair to play Monday morning quarterback after a true crisis. But now what?
Joe Weisenthal and Tracy Alloway recently hosted Anton Posner and Margo Brock of Mercury Resources on the Bloomberg Odd Lots podcast. They discussed examples of how inadequate public infrastructure is leading to logistical bottlenecks that are in part responsible for the recent increase in reported and expected future inflation. When commentating on the discussion in his column accompanying the Bloomberg 5 Things to Start Your Day newsletter, Weisenthal stated, “One of the things I like to talk about around here is how our entire conception of ‘paying for it’ is totally off. If we do some big infrastructure project, people imagine that we either have to pay for it with taxes now, or ‘the children’ will have to pay for it one day down the road. But the reality is the opposite. What we’re paying for right now – in the form of higher prices on various goods – is in part the lack of investment in key infrastructure in the years and decades leading up to the crisis.”
My aim is not to provide a full endorsement of Weisenthal’s views, but to acknowledge they are worthy of consideration by those calling for tighter Fed policy given higher recent inflation readings when a reasonable portion of the current inflationary pressures are not well-addressed by monetary policy. In fact, it might be that maintaining a looser-for-longer monetary stance that accepts above-trend inflation over the short-to-medium term could result in a lower inflation rate over the long term because a looser monetary policy might help encourage debottlenecking infrastructure investments. Of course, inflation is an amorphous topic, and maintaining a looser-for-longer monetary policy stance could help feed the concerning speculative frenzies. I do not pretend to have an inside track on the proper course of monetary policy. I do, however, think these counterintuitive arguments should be a part of the overall debate.
Getting back to the original premise, “meme stock mania” juxtaposed against our country’s infrastructure problem seems indicative of a misallocation of capital. Fortunately, the bipartisan priority in D.C. just now (We will see what happens.) is to champion what I am sure will be a highly imperfect infrastructure bill. I say good. It gives some hope.
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Chas Craig is president of Meliora Capital in Tulsa (www.melcapital.com).
