Dirty Thoughts: over time and over budget
This mess might take longer than we think
Rule #1. It almost always takes longer than you think, and it almost always costs more
If there is one thing at which I am consistently miserable, it is time estimation for projects. Whether it is installing new fence at the ranch, flipping a house, or remodeling a bathroom, I almost always get the timing wrong. And it is terribly frustrating. I can see the steps in my head. I know exactly what I need to do. And yet some gremlin invariably comes along and frustrates my plans. The skid steer goes down hard. There is some structural issue that needs correcting before a project can proceed. The next thing I know, I am two weeks over due. Then four weeks. Then other problems rise like ghouls from the aether, and I am two months behind. Sometimes it seems like planning and budgeting for setbacks only invites more and longer setbacks. God has a sense of humor and is constantly teaching me humility (I am a stubborn student). On time, on budget? Well let’s just see about that.
Folks, X does not equal Y. When it comes to predicting the future, life is rarely that clean. I have a couple of handy mental shortcuts based on this experience: 1. It almost always takes longer than you think, 2. It will almost always cost more than you budget. “It” can be anything. I’ve found these assumptions to be true enough often enough to be guiding principles. And on that rare occasion where those statements are not true then I am pleasantly surprised to the upside. Which doesn’t happen often.
Someone’s knocking. Oh no. It’s Uncle Jerome again
Frankly, I am tired of writing his name. I am bored of thinking about him. But like Leslie Nielsen as an umpire dramatically making bad calls at a baseball game (in order to delay the game and stop the Queen from being assassinated of course), Uncle Jerome just can’t help but be the center of attention. The following is worth repeating: the referee should never be a highlight on Sportscenter and money and rates should only rarely be the focus of attention in the financial media. I should be writing about real estate and not obsessing about the Fed. Yet here we are. Week after miserable week. With no signs of stopping soon.
I see the problem mainly as one of bad and untimely data combined with a stale understanding of economics. The Fed makes decisions based on long term averages which are lagging and slow moving. My military trained brain can’t help but ponder: what if we fought wars the way the Fed fights inflation? Well, we pretty much did in Vietnam, Iraq, and Afghanistan. Allow that to inform you of where we are headed: over time, over budget. And with all of the unintended consequences inherent.
Rule #2. Don’t be slow to recognize the facts; don’t be stubborn in the face of change (much easier said than done)
Which begs the question: when will it all stop? When will the Fed be content to get out of the way, rest on its laurels, sit still for a hot second, and let markets adjust? Folks, it’s gonna be a while. We’ve a long ride ahead of us. Uncle Jerome is hell bent and whiskey bound on the idea that inflation should get back to 2% and that he is the anointed one to make it happen. It is going to take a lot longer than any one of us might suppose for academic economists to accept the idea that the economy (our Culture of Exchange) is not a mathematical formula to be manipulated at will. It is going to take a lot longer than any of us peasants would wish for the eggheads in the Ivory Tower to accept that they do NOT, in fact, have control. Over anything. They are stuck in the old models where rates were correlated to employment and a move up in rates will create a desired outcome. If X then Y.
But the old models have not born fruit and the numbers are proving stubborn. Perhaps our culture has shifted. Perhaps the economy has changed. Perhaps there is a new normal to achieve and the only thing standing in our way is the Fed itself. Perhaps, and most likely, there is no such thing as normal at all (or equilibrium), and we actually exist in a dynamic and chaotic reality where absolute control is absolutely impossible. Perhaps. None of us really knows what the future holds. Not me. Not you. Certainly not the fifty-pound brains walking around the Federal Reserve.
Rule #3. Control is an illusion
Ultimately, if they go far enough, the Fed can absolutely get inflation down to 2% and employment back to a “natural rate” (whatever that might be). Sure, the Fed can manipulate and skew our medium of exchange (the dollar) so far that it snaps like the old rubber band you find on the floorboard of a sun beaten car. A doctor can also stop the spread of brain cancer by decapitating the patient: it works logically and mathematically, right? But at what cost, dear reader? At what cost?
The Illusion of Control is always seductive. But as any good military planner will tell you: the enemy also gets a chance to move. And the anticipated reaction rarely comes to fruition. It brings to mind the old parable of the man who makes a wish before a genie: oh great genie, I want to lose 50 pounds. The genie snaps and claps and the man’s right leg disappears. The man got what he wanted but not the way he wanted it. So it goes.
The consequences of our actions bear second, third, and infinity order effects the likes of which we never expected. How can a person model this? How can you bottle gross human action within the tyranny of formula? You can’t. I can’t. They can’t. The difference between us and them is that us peasants already know this. Sadly, we fall under the auspices of those most susceptible to the Illusion of Control: the people “in control”.
At the very front end of a miserable couple of years
Because I think I know a thing or two about life and the absolute incoherent mess that is the “real world”, I am squirrelly in my prognostications. There is no one future; only a vast range of possible. So I try to make sure I hedge every word with an admission that I know nothing, John Snow. Yet I become more and more convicted that we are at the very front end of a very miserable couple (few?) of years. Soft landings are not achieved by pointing the nose of the plane directly at the ground. Yet Uncle Jerome thinks he knows exactly what he must do to fix us all. He can see the steps in his head. It all makes perfect, logical sense. But there just ain’t no accounting (sic) for the boogeyman waiting in the unknown darkness. And those are the ones that get us. Every Time. And so we must remember the rule that it always takes longer than we think - we will not be on time. We must also remember that it will cost more than we think - we will almost certainly go over budget.