A Libertarian Laissez-Faire Economist Looks at the Jobs Report, the Federal Reserve, and the Managed Economy
By Joe Cozart
As a libertarian laissez-faire economist, I find the monthly jobs report fascinating for a reason that has very little to do with the number of jobs created. What interests me is what happens next. A figure appears on a government screen, economists compare it with expectations, traders move billions of dollars within seconds, bond yields change, Bitcoin reacts, stocks rise or fall, and the Federal Reserve is suddenly discussed as though it were standing beside the American economy with one hand on the accelerator and the other on the brake.
The strange part is that what sounds like good news in ordinary English can become bad news in the language of financial markets.
If hundreds of thousands of Americans find jobs, businesses are hiring, wages are rising, people have money to spend, and companies are investing, my natural reaction is that the economy is doing what an economy is supposed to do. People are producing, earning, spending, building, borrowing, saving, investing, and making independent decisions about their own futures.
And yet the modern monetary system may look at exactly the same activity and become nervous.
Too many jobs can mean too much income. Too much income can mean too much spending. Too much spending can mean too much demand. Too much demand can mean inflation. And once inflation enters the sentence, the Federal Reserve enters the room.
That is where my laissez-faire instincts begin asking questions.
The Federal Reserve does not dislike employment. It does not dislike investment. It does not dislike prosperity. Its concern is that an economy operating too aggressively can create inflationary pressure. So it raises interest rates or keeps them high in an effort to slow borrowing, slow spending, slow investment, and ultimately reduce demand.
In other words, when the economy is running strongly enough, the central bank may deliberately try to make certain parts of it run less strongly.
That is the part I find philosophically revealing.
Interest rates are themselves prices. They are the price of money over time. In almost every other part of a market economy, I am told that prices contain information. The price of wheat tells farmers something. The price of oil tells producers something. The price of labor tells employers something. Prices rise and fall because millions of individual decisions are being made simultaneously.
Yet when we arrive at the price of money, we suddenly accept the idea that a small group of people should determine what that price ought to be.
That is not a minor exception to laissez-faire economics. It may be one of the largest exceptions imaginable.
The central bank essentially says that the market may be producing too much demand, too much credit, too much investment, or too much wage pressure, and therefore the price of money should be adjusted to alter behavior throughout the entire economy.
A laissez-faire economist hears something else.
I hear an institution attempting to decide how much economic activity is enough.
That does not mean the Federal Reserve has no logic behind what it does. The logic is perfectly understandable. Inflation can destroy purchasing power. Uncontrolled credit expansion can produce bubbles. Excessive leverage can create instability. A central bank attempting to prevent those outcomes is not acting randomly.
The deeper question is whether the solution creates another form of distortion.
If interest rates are held too low, borrowing becomes unnaturally cheap. Businesses may invest in projects that would never make sense under normal market conditions. Investors may take risks they would otherwise reject. Asset prices may rise because money is abundant rather than because underlying value has increased.
Then the Federal Reserve sees the consequences of excessive demand and raises rates.
Suddenly borrowing becomes expensive. Investment slows. Housing weakens. Businesses become cautious. Financial markets reprice. Consumers discover that credit cards, cars, homes, and business loans cost more.
The institution that previously made money unusually cheap now attempts to correct the resulting excess by making money unusually expensive.
That is the cycle that interests me far more than whether a particular jobs report produced 90,000 jobs or 190,000 jobs.
The number is merely the trigger.
The real story is the architecture behind the reaction.
This is why financial markets can celebrate a weak jobs report.
To someone outside the market, that can sound almost perverse. Why would investors be pleased that fewer people were hired than expected?
Because investors are often not responding to employment itself. They are responding to what employment may cause the Federal Reserve to do next.
A softer jobs report may suggest that the economy is cooling. If the economy is cooling, inflation may cool. If inflation cools, the Federal Reserve may not need to keep rates as high. If rates fall, borrowing becomes easier, bond prices may rise, growth stocks may become more attractive, and liquidity may migrate toward risk assets such as Bitcoin.
So bad news can become good news.
And good news can become bad news.
That inversion tells us something important.
We are no longer merely observing an economy.
We are observing an economy observing the Federal Reserve observing the economy.
That circular relationship may be one of the defining characteristics of modern finance.
As a laissez-faire economist, I would prefer something simpler.
I would prefer an economy in which strong employment is allowed to be strong employment. In which investment is allowed to be investment. In which spending is allowed to rise and fall according to the choices of households and businesses. In which the price of money contains market information rather than policy intention.
Markets make mistakes. Businesses fail. Investors overreach. Consumers overspend. Speculation becomes excessive. None of that disappears under laissez-faire economics.
But failure is also information.
A bad investment teaches the market something. A failed company frees capital for something else. A poorly priced loan punishes the lender who made it. A speculative bubble eventually discovers gravity.
The laissez-faire question is not whether mistakes should be prevented.
It is whether the attempt to prevent mistakes creates larger ones.
That is what I hear when the jobs report arrives every month.
I do not hear merely whether employment rose or fell.
I hear a much larger argument about who should decide the temperature of an economy.
The market?
Or the thermostat?
——— GMJoe™ ———
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