I was forwarded a copy of John Mauldin’s latest “Thoughts from the Frontline” email column by a friend. It’s basically a finance/investing newsletter that centers on economic issues. I get this kind of thing sent to me fairly regularly, since people know I study economics. Sometimes (although not in this case) it’s also because folks expect someone with a masters in economics to know about investing, which couldn’t be farther from the truth. At best I can explain to you why you’re unlikely to beat a “diversify-and-hold” strategy, but I’m basically ignorant on that stuff. I’m going to go through this one in some detail, and then talk about this kind of “economic newsletter” more generally.
Mauldin makes bunch of claims, of various merits.
1) “How Are You Going to Keep Them Down on the Farm?” An economic history anecdote about the beginning of the shift from farming to the modern economy. This is interesting but I don’t see how it’s related to his other points. He alludes to something about graduate school, but what exactly is the grand shift he sees on the horizon? I may have missed that somehow.
2) “A College Degree Is Not Enough” It’s definitely true that a college degree doesn’t guarantee a job. It’s not clear whether it ever did, though – he doesn’t provide evidence on that point, and I can’t recall seeing this data in John Bound’s portion of second-semester graduate labor economics, which focused on human capital. (When I get back to Michigan I’ll ask him, I’m sure he knows). My thinking is you’d need to look at maybe the 1981 recession to see what happened “back in the day”. It’s also true that bachelors holders have a huge leg up over less-educated peers. Most of the talk about poor returns to education doesn’t pay enough attention to how badly-off high school graduates are.
3) “Boomers Are Breaking the Deal” The idea that boomers “breaking the deal” by working longer is a problem is a fallacy and directly contradicts his final point, about a shortage of workers to support retirees. There is not a finite supply of jobs in the economy. If there were, hundreds of millions of Americans would be out of work since we used to have far fewer total jobs than we currently have people. This idea (the “lump of labor fallacy”) is commonly cited but there’s no evidence that a larger workforce increases unemployment, except maybe over the very short term. Lots of evidence points out the opposite – developing countries (including the US in the past) uniformly undergo a “demographic dividend” where they have tons of workers and this drastically boosts their economies.
4) “Two Workers for Every Social Security Recipient” We definitely need more workers to sustain SS. One great solution is Mauldin’s third “problem” from above, which is that Boomers are working longer. This is great. It raises the size of the workforce while decreasing the number of retirees (People who are still working can collect some SS benefits, but not 100%, between age 62 and 67 (or so, the “full retirement age” depends on when you were born)).
After re-reading the newsletter, I’m not sure the points are supposed to be connected. But the ironic juxtaposition of his last two points.
With these emails, it’s important to consider the source, the audience, and the goal of the newsletter. Mauldin is a financial expert. While the newsletter disavows the idea that it’s selling anything, he is in the business of getting people to listen to him and (probably*) helping them invest. So there are three somewhat nefarious potential payoffs to doing this. One is attention – getting lots of people to read his newsletters is likely profitable, so it pays to be a bit sensationalistic and tell his audience what they want to hear. The second is the asymmetric returns to crazy predictions. In other such newsletters, it’s common to see forecasts of impending doom; circa January 2011 I was forwarded lots of assertions that we were about to experience hyper-inflation. No one is likely to remember your crazy predictions if they don’t pay off, but if they do, you get to be famous. The third is that you can make forecasts or conduct analyses that directly lead your readers to consume goods or services you’re selling. With the hyper-inflation talk, there was a lot of selling of gold and so forth.
I commend Mauldin for staying away from the second payoff, which can be tempting, but he’s definitely doing a bit of sensationalism and playing-to-his-audience bit. Investors lean Republican, so they like to hear stuff like the fact that one in eight American families are on food stamps or that one in two families get checks from the government. Neither are false, as far as I can tell, but both are overplayed – the second figure will rise mechanically as the population ages, for example.
As for directly profiting off the newsletter, I don’t see much of that either. He does market his talks at the bottom, so you could argue that his mild doomsaying is a way of encouraging attendance; if things are bad then you need to hear from the expert. I suspect this is more of a long game, though – he’s setting himself up as a reliable analyst for his target audience of rich, fiscally-conservative readers, so they will want to come to him for services in the future. This is the finance equivalent of a snack company sponsoring the paralympics.
Could this all be entirely ingenuous, just intended as thoughtful analysis on the economy? I’m doubtful, and my doubts return to the vast disconnect between his last two points. People trying to do thoughtful analysis for the public good usually impose a bit more consistency on their essays.
Hat Tip: Robert Bruhl, via email