The least bad choice – the big picture

I’ve looked at various sentiment surveys and right track/wrong track surveys with bewilderment. They are so stupid that they are confused, and they are indifferent because they know that human nature cannot be changed. What I can do is share some small insights. Hopefully, these will give you fresh perspectives you might not have considered otherwise, and perhaps even a deeper understanding of what’s going on here and now.

As we have discussed, sentiment research during normal times tends to be problematic. People are often unaware of what they truly believe, and their expectations about what will make them happy and satisfied in the future can be mistaken.

But these don’t seem to be normal times. We are in a post-pandemic environment of popular uprising. These issues are not unprecedented, but they are somewhat unusual.

Since the pandemic began to subside, we have been working on two important issues. 1) Inflation, or the rate of change in prices. 2) Cost. means the current absolute price level.

Even though the inflation rate peaked in June 2022 and fell from 9% to 3%, people’s anger persisted. The rate of change may have gone down, but everything is now more expensive. With the pandemic-related issues resolved, the rate of change has returned to more or less normal levels, which is a good thing. But now absolute price levels for everything from cars to housing to energy to rentals are 10-20% higher. No wonder people whose wages have increased by only a fraction of that amount are angry.

Shockingly here, and it sounds bad, the alternative was: much worse.

The subtle, counterintuitive truth is that the pandemic has presented policymakers with a dire set of options. To their credit, they made the least bad choice. Those choices still resonate today, influencing stock markets, bonds, and, as we saw in last night’s Republican debate, politics. The public wants someone (Anyone!) Although there is some blame, I would suggest that the 2021-2022 inflation spike and associated price increases were the price to pay to avoid a different fate. Had other policy decisions been implemented, the final outcome of those choices would have been far worse.


Think back to where you were some 42 months ago. The novel coronavirus disease (Covid-19) was raging, and no one had any idea what was going on. People were washing their grocery deliveries, thinking it was a way to stop the spread of respiratory illnesses. We were flying blind and things were about to get worse. The government’s main responses are: 1) Operation Warp Speed, an effort to bring vaccines to the population in large quantities; 2) CARES Act 1, a $2.2 trillion fiscal stimulus that puts cash into the bank accounts of 100 million households. 3) CARES Act II and III, plus his $1.8 trillion in spending.

Let’s consider some possible counterfactuals.

Scenario 1: Do nothing: Don’t laugh, some people suggested that as an option. The argument was that the free market would sort out personal protective equipment (PPE). No lockdown, just allowing the virus to “burn out” after infecting 80% of the population. “Herd immunity” was the watchword.

Scenario 2: Go small: Extend unemployment benefits for 3 or 6 months. I support vaccination, but I will not force it. Please check if you need to repeat this again.

Scenario 3: CARES Act 1, but not 2 or 3: Spend a lot of money initially to bring the problem down to a manageable size, then let the private sector do what’s best.

The problem with all of the above is that the consequences would have been catastrophic. There will be many more deaths, many people will lose money for food, rent, and medicine, there will be millions of evictions, and there will be complete social chaos. Without funding for vaccines, treatments, and testing, COVID-19 would spread like wildfire and there would be no way to stop it. Without the government-mandated mitigation measures, the number of infections and deaths would have skyrocketed out of control. The entire overstretched medical system would have collapsed, making the disaster even worse. Total US deaths: 10 million or 20 million.

Oh, and the economy would have entered the worst Depression since 1929. Remember the Atlanta Fed policy? current GDP June 2020 showed that the economy had halved, with a -52.8% decline. Major industries such as travel and hospitality, retail, entertainment, and services would have completely collapsed. The company would disappear, and bankruptcy courts would spend the next decade unraveling the mess.

If the government had done less, the outcome would have been disproportionately worse. It would have been a bloodbath…


We don’t need a thought experiment to see what would happen if the government chose to skip fiscal stimulus. We need look no further than the response to the Great Financial Crisis. It was almost all monetary, there was no fiscal stimulus.

Consider that the Federal Reserve initiated ZIRP and quantitative easing policies, while Congress proposed an extension of unemployment insurance and modest temporary tax cuts. It also included building a small infrastructure. End result: More than 90% financial, less than 10% financial.

The emphasis on low interest rates that helped owners of capital meant that everything was priced in dollars, and credit soared while the middle and lower classes suffered. Job creation was sluggish, wages were not increasing, consumer spending was flat, and sales of durable goods were well below average. In fact, the overall economy after the global financial crisis was so weak that it provided fertile ground for a populist revolt in the United States.


The general public tends not to engage in counterfactual thinking exercises. They like things simple, sometimes even oversimplified to black and white options. They point their fingers and ask for the pike’s head. This is how crowds work, and that’s why they become so dangerous. In reality, the world is nuanced and complex, and simple answers to complex questions are rarely accurate or precise.

I appreciate that my job is to think about how to allocate capital. It seems so much easier than figuring out how to run for office and telling the public what they want to hear: oversimplified answers to the world’s nastiest, most complex problems.

Does partisanship drive consumer sentiment? (August 9, 2022)

Who is responsible for inflation, 1-15 (June 28, 2022)

More sentiment nonsense (July 28, 2023)

Worries about consumer sentiment (July 8, 2022)

Sentiment lol (May 17, 2022)

Exaggerating negative consequences (April 11, 2022)

How to read old news (October 29, 2021)

politics and investment


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