This is especially true in the emotional, highly fraught area of unemployment. In a worrying climate of dying professions, it’s hard to get a grip on what takes their place. “Though we humans do our best,” he wrote, “we usually underestimate the capacity of market economies to reinvent the nature of work.” How exactly it will work this time, says Grant, we don’t know. We never know until after the fact.
Consider the now-conventional analysis of the U.S. economy over the last decade: It was, we have had drilled into us, built on the swampy ground of real-estate speculation and the feverish spending of borrowed money. Okay, sure. But it was also about the explosion of information technology, the concomitant surge in productivity, and unprecedented access to low-cost labor, both domestically (Latin American immigrants) and globally (Chinese), which lowered the prices of goods and services for all Americans. These conditions, unlike the housing market, have not gone away.
Grant’s second cause for optimism is an observation about human nature, summed up by an epigram he borrowed from the late British economist Arthur C. Pigou: “The error of optimism dies in the crisis, but in dying it gives birth to an error of pessimism. This new error is born not an infant, but a giant.” As peculiar as our economic circumstances may seem to us right now, the way people behave has a certain reassuring constancy—which is to say, we freak out and then we get over it.
Though economic forecasting is a major part of what his subscribers pay him for, Grant considers much of it a pseudo-intellectual parlor game. “Mindful that the future is a mystery,” he wrote in recent newsletter, “we do not pretend to know what nobody can know.” The past offers only so much help. In the industrial history of the United States, there have only been about 30 economic recoveries, a minuscule sample size. (If somebody touted a medical breakthrough based on a study of 30 patients, who would rush to sign up for this new wonder drug?) As for the data itself, consider that the dominant measure of economic activity, gross domestic product, is an antique that does a poor job of capturing the intangible investments that abound in the information economy. The numbers that drive the markets up and down, like jobless figures, are glorified guesses subject to constant revision. The latest issue of Grant’s Interest Rate Observer notes that annualized GDP growth for the third quarter of 1983 has been revised ten times, including just this fall! How much can we possibly know about the future if we’re still unsure about 1983?
Grant, too, harbors deep concerns about what lies beyond the bounce-back. He sees long-term problems in the government’s massive efforts to save the economy, especially the low interest rates that Bernanke shows little inclination to raise. “Inflation is upon us,” he says. “Not too much money chasing too few goods, but too much money. The object of the money’s desire varies from one cycle to another. It could chase skirts, toothpaste, and automobiles, as it did in the seventies. Or it could chase stocks, houses, or income-producing buildings, as it did a few years back.”
Grant, in other words, hasn’t forsaken pessimism so much as postponed it. Hyper inflation could produce the kind of volatility that enables traders to make a killing while the rest of us suffer sticker shock in the breakfast-cereal aisle. Then it’ll be the sport-hunting vigilantes who are doing the chasing.