Recently I was invited by the CSTA to talk about contrarian investing- which of course is the subject surrounding my new book, Smart Money, Dumb Money. I began the seminar by noting that the one thing I left out of the book was how we might develop a contrarian’s mindset in all aspects of life. Not just investing. I’d like to talk a little about developing that mentality. Today’s blog is a bit long, but it may offer some food for thought to those willing to muscle through it.
Later in this essay, I do touch on politics, although it’s only part of the message to illustrate the MMT concept I end up addressing. It’s your own prerogative to read it. Or don’t – ignore it, and move on. Price of admission, as I’ve said before, for this otherwise free service. No ads! No popups! Sometimes a political comment.
During the CSTA seminar, I presented some thoughts on learning to spot “crowded ideas, habits or beliefs”. The parallel to a crowded belief is a “crowded trade”. In trading, we recently witnessed the crowded trade of green energy — which soared in 2020, then crashed recently. Other crowded trades might include the rise and fall of marijuana stocks from 2018- 2019, and the ongoing rapid rise and fall patterns of bitcoin. During the seminar, I encouraged participants to take note of popular trends that appear before us every day. In my book, I pointed out the recent crowded patterns of millennial tattoo’s, and middle aged SUV/pickup truck purchases. Herd behavior is part of human reality.
During the seminar I made some fun of the trend over the past few years towards using the word “perfect”. Try ordering a coffee – hear the server say “perfect” after the order is placed. The pattern of hearing the word “perfect” in casual human interaction imbeds itself in our brains via the limbic system. Our herding instinct, driven by protective and / or social needs kicks in. We start to say “perfect” to fit in with the modern lingo. Perhaps we become unaware of how often we, now, are saying it. And so it spreads. Was my coffee order for a tall dark roast truly a thing of flawless beauty and perfection?
Some thoughts on becoming a contrarian thinker:
- Learn to identify crowd-think.
- Identify your bias and / or the crowd’s bias.
- Become aware of media bias and/or misinformation. For example, I presented some “overlooked” data about famous cyclist Lance Armstrong’s drug scandal – which, when viewed, tends to change many peoples perspectives about this athlete.
- Force yourself to analyze – with an open mind – some unbiased or opposing opinions or (better yet!) actual data.
- Regularly feed your brain with contrarian publications and books. My absolute favorite magazine is Michael Shermer’s Skeptic Magazine– I’ve subscribed for years. Books by the late great Christopher Hitchens and others, help us to think outside of the box.
Re-thinking a bias
As just another imperfect being with a chimp-brain (limbic system), I try my best to spot my biases. I have my share! One bias was that against “Modern Monetary Theory” (MMT). Like many of you, I have lead a disciplined life through career management, budgeting, investing and saving towards the future. I eat my own cooking – I have saved, invested, and controlled my debt. The MMT concept of (almost) unlimited spending, while ignoring debt and deficits rubs me in the wrong way.
Enter my 4th rule above (“Force yourself to analyze opposing data or opinions with an unbiased approach”). I was grateful that one of the regular readers of this blog encouraged me to read Stephanie Kelton’s “The Deficit Myth”. This book is considered the go-to for understanding MMT. I swallowed my bias, and ordered the audio book from Audible, and listened to it.
While I am not going to do a full book report, here is a brief what I got from the book:
Kelton’s bottom-line premises is that the government is not the same as a households or businesses. That’s because, unlike you and I , or a business, the government can never default. It can print away and pay for whatever it needs. Debt is not a concern because (theoretically) it can be paid back by more printing. The inevitable inflation concern is addressed by Kelton. She notes that the government can control inflation through taxation. Too much money out there? Money being horded by the rich? Tax it out of the system to control spending and to control inequality.
Kelton believes that MMT can drive the economy to near full employment. In her own words “Well placed money” into “good places” will stimulate job growth. It is the path to shared prosperity and achieving progressive goals. It means no longer asking how we will pay for things, and instead just creating the money to make them happen. Everyone wins with MMT.
I really did try to look at the MMT idea with fresh eyes and open mind. I can appreciate the ideas behind Kelton’s book and MMT in general. But – and you will pardon my ignorance as a mere stock trader with an interest in behavioral finance and NOT as a trained economist – (here comes that skeptic in me…) I have a real problem with MMT idealism vs. reality. As business trainer Brian Tracey said:
Human beings, by nature, are lazy, greedy, ambitious, selfish, impatient, vain, and ignorant. These traits are neither good nor bad by themselves; it is only the way in which we manifest these natural traits that make them positive or negative. These natural traits are the fundamental reasons for why people do what they do.
Conceptually, in order for MMT to work you will need:
- The individual or individuals in government to have the full power to print money and spend it
- That unencumbered government must have an ethical, non self-serving agenda when spending the money effectively
- That unencumbered, ethical & unselfish government must have access to massive if not unlimited sources of unbiased and highly accurate information. It needs the ability/ understanding/ and intelligence to interpret that myriad of information to make highly informed decisions on the best and most effective deployment of the capital
Do you believe that such a group exits to manage an MMT approach in our country? In any party? Lets take a look at the current government of Canada under these categories:
1: Power to print money and spend it
In 2015, the current government proposed a “MMT-lite” budget of running a $25 billion deficit in their first 3 years, then returning to a balanced budget in the 4th year. Those deficit numbers tripled in the four years – well before the COVID spending began. There was no return to a balanced budget in 2019. The government then carried forth, managing to convince the NDP to back various spending initiatives – effectively achieving the necessary power to print and spend as it wishes. The government recently called an election in an attempt to achieve an even greater level of power to print, tax and spend as it wishes. In the spirit of MMT, the government is already promising further billions and billions of dollars in spending, if elected. So, for those who endorse MMT – a government with the power to spend as it wishes is currently in place. So far, so good.
2: Government must have an ethical agenda when deploying the capital
I do not think that ANY government can, or ever has, operated within a wholly ethical and unselfish agenda- which is a prime necessity to make MMT work.
Currently, it is obvious that the current government is the least ethical Canadian government on record. It is literally the only government to have been charged twice for ethics violations and brought up on 2 further investigations (only to narrowly escaped adding those to their shocking record).
Still – perhaps they are attempting to spend money raised effectively and selflessly: So – lets ask ourselves. Has the current government, as Kelton said, placed the capital “well” and in “good places”? Or has it gone to private enterprises who may be connected or supporters of the current regime? Like…Companies such as Loblaws, Bombardier, SNC, Data Sciences? Has it been distributed equally and without bias, or has it gone to supportive friends or those with kickback benefits such as the WE charity, the Aga Khan foundation? Has it gone into widely beneficial Canadian infrastructure and social programs as promised? Or have billions of those printed dollars been sent outside our the country with no net benefit to Canada – as outlined on this blog
Has all of this printed money been deployed unselfishly in a non self-serving manner – or has any been used to enhance the personal pleasures of those in power – such as home renovations, personal playhouses, trips, and vacations, and other indulgences?
Based on these observations, I would say that, despite the good intentions of MMT – my second condition for it to work has most certainly NOT been met in Canada. Its clear that much of the capital raised through creating debt and printing money is being deployed selfishly, inefficiently, and to favored groups. This, at an historically alarming rate. It has not been deployed “well and and into good places” as Kelton recommends. Proponents of MMT might argue that the current Canadian government has been exceptionally unethical and self serving by historic standards, and could easily be replaced with a more ethical one. Yes – we could very easily replace the current regime with a more ethical government. Still, that more ethical replacement will still be flawed humans. Brian Tracey observes as inherent human behavior aspects of greed, laziness, selfishness etc. MMT requires an altruistic human or group of humans to manage an MMT economic model. Lest we get a repeat of the current government’s very non-altruistic actions.
3: Government must consist of highly qualified people with access to all necessary information to make smart decisions
Lets assume that the current government is not as unethical or self serving as evidence would suggest. It needs the right information to make those well-intended decisions. So…Does anyone in the current government have access to all information? Can we be assured this information they access is accurate or reliable? We know that having access to ALL information is next to impossible, and, in fact, most of the time we have far less information to make informed decisions than we think we do. In order for MMT to be properly applied/ spending to be deployed effectively, the government needs a highly accurate and incredibly deep pool of data with no bias or personal opinions to work with. Is that possible?
But good data isn’t enough. It has to be interpreted by truly qualified experts with highly specific abilities and expertise. This is essential to place the capital effectively and achieve the promises of MMT.
Our current government is filled with representatives who are not trained economists, or financial experts. Are they qualified to analyze complex data and make informed, logical and intelligent decisions based on years of expertise and specialized knowledge? For fun, try looking up videos on Trudeau when he is questioned about monetary policy, debt/deficit/surplus balances, or anything that involves math, numbers or financial concepts. I’m sure many of you have seen the skirting of such issues and “redirects” towards emotional or conceptual soundbites. “Building the economy from the heart-out”, “I’d rather not talk about monetary policies – lets talk families”, “The budget will take care of itself”. On and on. Watch him redirect questions in parliament. Search on YouTube for “budget” or related financial questioning in parliament. Numbers are hard to talk about for Trudeau. But numbers are what MMT is all about.
Justin Trudeau’s educational background is in liberal arts. Not helpful for running an economy, and a MMT based one in particular. That might be OK – perhaps he has a team behind him of whiz-bang financial wizards with a myriad of experience that can manage an MMT based economy. Or…..perhaps not. Horrifyingly – The current Finance Minister is not a financial expert (you can’t make this stuff up…). She studied Russian history and Slavonic studies in her formal education, and has minimal economic/ finance background.
The other finance member on the team is Minister of Middle Class Prosperity and Associate Finance Minister. She does have an MBA (a good start…). She also has a bachelor of social sciences with honors in sociology. Another liberal dose – of liberal arts – goes into the pot. She has no career background in finance or economics. That’s your non-finance backgrounded, finance team, folks. Sometimes the truth is stranger than fiction.
The current government is NOT the Chretien Liberal Government with the highly qualified Finance Minister Paul Martin of the 1990’s helping to balance the budget. I actually voted for Chretien the first time he was elected. You don’t have to vote liberal to be a liberal and you don’t have to vote conservative to be a conservative.
So – my third suggested criteria for MMT to work is to have access to accurate information, and have highly informed experts use that information to make intelligent decisions. Here’s the question…Do you feel that we have those two criteria in place for my third criteria of getting MMT to work in Canada (or any other country, for that matter)?
I love the concept of MMT. Its like finding a type of dessert that you can eat in unlimited quantities, without weight gain or ever getting tired of eating it. If you feel you can identify the correct people to run an effective MMT economic policy in Canada, wow – love to hear who that might be. Currently, I do not think we have any party with the ethics, depth of informative/ unbiased data, or knowledge and expertise to continue printing money as is being done. I do not think that MMT will ever work in the real world, as good as the concept sounds. I do have faith that the three alternatives to the current government in the new election – whether left (NDP), right (PPC) or central (CPC) be your taste, offer more appropriate choices to manage a democratic economic policy than the current regime. How’s that for non-partisan?
Your challenge- should you choose to accept it
Do you have a personal bias that you could explore an opposing data set or opinion on? Has the media influenced you to form an opinion on something or someone…. or do you hold an opinion that might be polarized or popular? How about fossil fuels? Green energy? Global warming? Vaccines? Poppy’s in November? Abortion? Religion? My favorite contrarian project of late: Ex-President Trump! Everyone in Canada is supposed to hate him. In the contrarian spirit, I read Conrad Black’s balanced take on that controversial guy here.
I’d like to thank, and to challenge the person who encouraged me to read the MMT book (and I did!). I’d like to ask him (you know who you are) to read Ayn Rand’s “Capitalism: The unknown ideal”
Contrarian thinking is a way of life, in my opinion. I am as flawed and biased as anyone. Perhaps more. But, by reading the books and magazines noted above, and by exploring ideas that go against my current grain, my goal is to become less so. Or at least see the other side’s view and/ or settle the issue in my mind. Perhaps this essay inspired some further thought in this mindset for you. As an aside – Ever the contrarian, I refuse to say “perfect” in a casual conversation.
MMT was also well covered in an excellent book, The Rise of America – Marin Katusa. Marin puts out some interesting points, through the eyes of an investor.
Trudeau’s educational background is the same as that of Peter Lynch. Heard of him?
If only he were Peter Lynch!
Another point that no country lives in a vacuum. Who is going to invest in a Canada on the way to becoming Venezuela?
Totally random comment relying on a half truth. Peter Lynch got an MBA from the University of Pennsylvania after completing a liberal arts degree. How about checking your facts before posting with heavy sarcasm? Weak…very weak….kinda like the current administration in Ottawa.
I read her book. I was a bit confused by what she meant by taxation incentivized people to work?
Also in a world of globalization the value of your currency matters. what would be the impact of MMT be for a given currency?
Yes there were many subjects I didn’t cover in this blog re her MMT beliefs–I do believe that printing unlimited amounts of $ has to be inflationary and cant just be controlled by taxation–but I’m no economist so its hard for me to strongly disagree. However–one thing she wrote about that I didn’t cover in this blog that I strongly disagreed with was her idea of the government creating jobs at a high wage ($15/hour vs a lower minimum wage). How is it beneficial to an economy to have the largest competitor (the government, who can print money) compete with a small business for labor? How is that higher wage, creating the necessity of business now raising wages to compete with the government jobs, not inflationary? (she states that it is not–but doesn’t explain HOW it is not inflationary!). How realistic is it to think that hiring anyone who wants the job implies that person – who was previously unemployable- would be a conscientious worker? Now they have a resume with a government job experience on it. But that person was possibly just leaning on the shovel and collecting their $15/ hour–after all, as she says in the book–they cant be fired! Now a small business hires that person(s), not knowing that they are freeloaders. Better, IMO, to let the market solve the employment situation –i.e. supply/demand. Sure–Make people work for welfare, but not at a high wage–so they want to go out and get a better job in the free market.