Bill Gross and Managing the Economy

A friend recently forwarded to me Bill Gross' thinking on the economy, and though I basically agreed with the policy recommendation to stimulate, I wasn't on the same page in the general view of long term trends and how we look at the economy in general.

He talks about the information age's impact on employment, but automation has been a constant feature of the economy for several centuries now, and there has been no discernible long term impact on employment. Yes, we no longer have 95% of the population working the fields, but the proportion of people working versus not has not been driven by technological advances. If you look at how employment has varied, far and away the biggest factor is the business cycle. It never happens that we are booming but with high unemployment, and it never happens that we have a recession with low unemployment -- there is a relationship here.

He also stands by his statement that central bank money control is equivalent to a Ponzi scheme. I'm not sure what to make of this terminology where he then follows it up by recommending heavy money printing. No one wants to knowingly participate in a Ponzi scheme, and it is a misuse of the language to use that term here. If one assumed that that central banks were hoping to lure the public into an emotional commitment to money and thereby through wanton printing trick them out of their hard possessions, then this terminology would make sense. But that is obviously not the case.

He also says that the piper must be paid eventually in the form of high inflation if we do go the money printing route. It's as if he considers this tool to be a switch which can only be turned on, and cannot be modulated. My sense is that if you have a reasonable view of history, you'll recognize that excessive inflation and deflation are both harmful and should be guarded against by any strategy of economic management.

I would like to see an inflation target which is reached via a combination of monetary, fiscal and tax policies. The logical link between our spending and our tax receipts is archaic and should be dropped. If the economy is running too hot, we should raise taxes and cut discretionary spending, regardless of our total debt or surplus. If the economy is running too cold, I think it would conversely be appropriate to cut taxes and increase discretionary spending, also regardless of the debt.