Thursday, December 29, 2016

What You Need to Know About Trump and the Economy...

...was written nearly 15 years ago by one of my favorite Keynesian-lite/conservative economists, Pierre Rinfret (1924-2006):
 December 8, 2002
I acted as an economic consultant to Jack Kennedy, Lyndon Baines Johnson, Richard Nixon, Gerald Ford (hardly long enough to count) and turned down Ronald Reagan.

Two years ago I warned a major Republican Senator I had been very close to for more than a decade of the economic problems ahead. I never heard from him. No acknowledgment, no nothing.

I warned a well know cabinet officer in this administration (he's still there) more than 15 months ago that we were in economic trouble. I asked him to take that to the President. I got the old brush off even though the Cabinet officer was a client of mine for many years! Thank you Pierre and that was it!

  August 18, 2001

The Honorable
Washington, D.C., 20301-1000


We are in a recession and it is going to get worse. The recovery will be weak
when it comes. It is a global recession.

The chances of a world depression are increasing.

If you would like to discuss it my addresses are above.

Regards as always,

Pierre A. Rinfret
"How severe? For a combination of reasons I think that the recession will not be so much severe as it will be prolonged. We will not go into as depression but we have a great deal of financial nonsense to get rid of and to clean up. That includes the instant 30 year old millionaires and ridiculous housing prices (my house, in nine years, has gone from a value of $2XXXXXX to a value of $6XXXXXX! Why "prolonged" because the world is in an "iffy" condition with Japan (the 2nd largest economy in the world) in bad shape along with most of Europe not doing great (not bad but not great either).

In other words George Bush has a full plate ahead of him."

It is almost impossible for any President (that I knew or had access to) to get the truth on what is happening to the American economy for a veritable complex of reasons.

I cannot put the reasons in any semblance of order so the list may be bulleted but it is not sequential in any way!

The reasons are interwoven and interrelated and as complex as an atom! As the scientists have learned, deep down it is chaos!

Politics is the reason the President is in office and politics is what he does, day in and day out.
The President himself is probably the most ignorant about economics of his entire entourage.
The advisors around him (excluding the so-called economists) are just as dumb as he is.
The so-called economists are, by and large, academics with no practical or ongoing experience of forecasting or analyzing. Arthur Burns was the most notable exception and he was a master, probably the best business cycle analyst in the world in his time. Alan Greenspan was a lousy private economist (you know what they say about high levels of incompetence) so he doesn't count.
In my experience the President hardly ever talked to the economists or read their reports.
Economic advisors are always good time Charlies and only tell the President the good news. Staff are always but always good time charlies!
They are terrified of being called extreme. In my experience they never dared to tell him the bad news! Halderman and Ehrlichman not only misinformed Richard Nixon about the state of the economy but they never allowed the bad news truth to get to him if they could stop it! Al Haig, as Chief of Staff for Gerald Ford, was a good time Charlie.
There is not one Bush cabinet officer capable of understanding and analyzing economic affairs.
A Wall street type is not an economist but something else on which I won't elaborate (you know what I think of the vast majority of them).
Presidents are bored to tears by economics. Richard Nixon used to say about Paul McCracken "MEDGO" which stood for "My eyes doth glaze over."McCracken was a master bore and a lousy economist.
No Secretary of the Treasury has had, in my lifetime, any detailed knowledge or experience as an economic analyst. John B. Connally was a politician, Bill Simon was Wall street, George Shultz was a labor economist, Bob Rubin was Wall street, Paul O'Neill was industry.
There is an incredible difference between academic economists and economic forecasters. The academics always but always end up in government as advisors to the President since they have the academic credentials! But they know nothing about forecasting!
No President ever knew that he didn't need academic analysts but economic forecasters! Nixon used me for forecasting and nothing else! Johnson and all his academics ignored all my forecasts (they couldn't stomach my dire forecasts about the economic impact of the Vietnam war).

The Kennedy academics (Walter Heller & Arthur Okun; the best of the bunch) used me mainly for forecasting since they didn't even try to do it!

I do not know of one administration in my entire lifetime (78 years) that foresaw a recession and certainly Hoover and his light weight academics did not foresee the depression.
And history records in spades that when a President gets into economic trouble the first thing he does is to chop heads! It is always but always someone else's fault! The President is never wrong, ask him!
BUT even if the President had been warned of economic troubles ahead he wouldn't have believed or accepted the analysis and forecasts! Boy do I know that!
Some quotes from Presidents I knew about the American economy about which I vouch 100%:

"I don't see why a tax cut and a defense spending increase will result in a larger Federal deficit."
"I can cut taxes, raise defense spending and lower the deficit."
"I don't need economic studies, my gut tells me."
"I don't care what economists think, I know better."
"What does the Secretary of Commerce do? He adds up the GNP or something like that; I think."
"What is annual rate and why do you multiply the monthly figure by 12?"
"Stop giving me that 'seasonally adjusted' bit. All you are doing is f------ up the numbers"
"I don't want to see those figures ever again."
"I never heard of 'lead indicators', what do they lead?"
"You mean we produce XXX billion a year! I find that hard to believe or accept."
"I thought the Japs were number one."
"Why is unemployment increasing and what does the GNP have to do with that?"
"He controls the money supply, doesn't he?"
"Tell him to get off his duff and push up the economy."
"I can't believe we have 13 percent inflation. My people say it is only 0.9%." 
"What will be the unemployment rate in November, 1972?

It doesn't matter Mr. President.

What do you think Dr. Stein?

I haven't done the figures, Mr. President.

Pierre, what do you think?

Mr. President it is now about 6 percent, by November,1972 it will above 9 percent.Your re-election is in jeopardy. 

No President knows beans about the American economic outlook and the people around him know less.

Talk big they do, understand they don't.

Now you know that another one of the reasons I constantly remind you to follow your own instincts is that you have your ear to the ground. You are out trying to make a living day in and day out. You can't afford to be wrong.

They are dedicated to listening to themselves.

The dummies believe their own propaganda.

Arthur Burns warned Richard Nixon and Eisenhower in 1960 (the Presidential election campaign of Nixon against Kennedy) that a recession was underway. Eisenhower ignored Burns, Nixon could do nothing, Burns was right and Kennedy won the election. Burns, as a result of that warning, was dearly loved, admired and rewarded by Richard Nixon. 
Annotation of Saturday, December 14, 2002. (Annotated with a story I should have included that says it all!)

Ida and I had gone to the Westchester Country Club for the week-end. On Sunday morning at 08:00 the telephone rang and the club operator said to me "The White House is on the phone.". To this day I do not know how they found me since we had not told anyone where we were going to be over the week end except my two children who had not talked to the white House.

It was Gerald Ford on the phone. It was only a few days after his ascendency to the Presidency. He said that he was calling me because President Nixon had told him I would always give him the blunt truth about the economy. He wanted to personally invite me to be the keynote speaker at a planned and upcoming White House conference on the subject of how to solve inflation.

I told him I would be honored but the problem facing the administration was not inflation but an economic recession. I explained to him that the economy was softening rapidly and we faced the possibility of a recession at election time. He said he had not heard that from anyone.

HE THEN SAID, "NO MATTER, I STILL WANT YOU AS MY KEYNOTE SPEAKER AND IT DOESN'T MATTER TO ME WHETHER YOU TALK ABOUT INFLATION OR A RECESSION. After a few more words he said to me "It's close to 9 o'clock and I have to get to church." We then signed off .

The conversation lasted about 40 minutes FROM 08:00 TO 08:40 (I checked him in and I checked him out).

Late Monday afternoon following I got a call from someone named Ambassador Rush and he hemmed and hawed and then disinvited me to the meeting with the nonsensical remark that there were too many Eastern economists in attendance!

"Besides which no economist in the country thinks the economy is weakening and the White House economists certainly do not think so!"

I called Al Haig as Chief of Staff and complained that I had been personally invited by the President of the United States and how could Rush disinvite me stepping on the personal invitation and request of the President?

Haig said he would get back to me.

On the Thursday following Haig called me and said to forget the entire subject ("Pierre, leave it alone.") since Rush was in charge. I asked Haig how could a staff member contradict the invitation of the President. Of course I didn't get an answer.

I didn't go, the conference was a failure. The President was never told that the economy was weakening and his own staff both lied to him and did him a total disservice. They kept the truth about the American economy away from him. Ambassador Rush made sure that the President heard nothing about a recession.

"Now we are faced with the first postwar world recession.The odds of a recession in the United States are steadily shifting in favor of one. For the past ten months we have taken the position that the odds of a recession in the United States were 50/50. We would now increase those odds to 60/40 unless we are capable of massive efficiencies in the use of energy."Rinfret-Boston Associates, November 27, 1973; The Political Economy, page one.

As a result of my disinvitation I predicted to my clients that Ford would lose to Carter since he was a wimp, run by his staff who could contradict him and uninformed to boot! That is a lethal combination ripe for defeat.

Unfortunately or fortunately, depending on your point of view, I was right and a recession occcured in the middle of the short Ford years! Jimmy Carter made enormous capital out of it and, of course, won the election. 
Rinfret on Firing Line:


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