Shania Twain, head the Fed!

Seven years ago I wrote a column: "Shania Twain, head the Fed!" The Canadian country-pop star was better suited to lead the U.S. Federal Reserve than the man then considered an economic maestro, Alan Greenspan, I argued.

It wasn't Twain's economic resume that impressed me. It was the lyrics in her song Ka-Ching, criticizing American economic behavior.

	Shania Twain saw the forest through the trees.
	Photo by: AP

"We've created us a credit card mess," Twain trilled. "We spend the money that we don't possess. When you're broke go and get a loan. Take out another mortgage on your home."

Well said. I wrote that the common sense demonstrated by this chanteuse, devoid as she might be of advanced economic education, was infinitely wiser than the tenets being espoused by guru Greenspan.

His policy was monetary expansion, enormously increasing the American government deficits under President George W. Bush. Greenspan was considered a visionary.

I concluded that appointing the singer to head the Fed might restore some common sense to the decision-making process at that hugely important institution.

The assumption that recession can be beaten back by increasing debt is wrong, I wrote at the time. It doesn't lead to sustained higher consumption. At best, people consume earlier, buying today and paying tomorrow - but it can't be done ad infinitum. It can only continue until bankruptcy ensues. Debt is not a cure for recession: It is an aspirin, and once its effect wears off, the pain comes back.

I also wrote that Washington was taking a vast gamble: that monetary and fiscal incentives would reignite the economy, creating enough growth to allow interest rates to be raised again, and to reduce the growing deficits.

If the gamble went Washington's way, well and good, and skeptics such as myself would have to eat their hats, I wrote. And if not? They would have to admit to indulging in voodoo economics, and start seeking real cures.

Who's eating hat?

I wrote all that seven years ago, in 2003. The way it reads, I could have written it today. For a while it seemed that I might have to start dining on hat: From 2004 to 2006, the U.S. economy did pick up. But then came 2007, and the cracks started to show, and 2008, when they widened into gaping chasms. I was spared chewing on chapeau.

Now it is common knowledge that the expansionary policy created the illusion of growth, based on cheap credit leading to an unsustainable, irrational inflation of housing prices. The expansionary policy turned out to have been voodoo economics after all, an aspirin that alleviated the pain for a bit, but solved nothing.

The effort to cure America's economic ills by voodoo economics continues, at a greater scope than before. As in 2003 it helped alleviate the symptoms, for a bit.

Waste reaches Washington

Some things have changed since 2003. Greenspan has been replaced by Ben Bernanke as chairman of the Fed. Meanwhile, Shania Twain's career seems stuck. She hasn't put out a new album in four years and recently told the press she's busy looking inwards. Her songs are played less and less.

We may therefore assume that she has free time. Who knows, maybe she also honed that sense of keen rationality she demonstrated in 2003. What's for sure is that the Fed and its leaders haven't spent the last seven years being introspective and learning any lessons. Therefore, allow me to reinstate my call from 2003, and from this platform I cry: Shania, stop gazing at your navel and hie thee to the Federal Reserve!

If she does, the singer will discover that the words she wrote nearly a decade ago still apply, even more keenly - but today the one spending money it doesn't have, the one borrowing too much, isn't the people but the government.

Now, as then, Twain's healthy common sense shows itself superior to the economic tenets of the decision-makers. They are digging the world into a deeper and deeper hole, because of their irresponsible inability to admit that their policy is wrong. They seem incapable of changing direction and telling the American public the bitter truth, divulging the real price of their mistakes over the last decades.

From day to day, that price is increasing. The bitter truth is that in the years to come the citizens of America, and probably of the rest of the world too, will see their standard of living fall. They will have to consume less, travel less, live in smaller homes, suffer greater crime rates and lose their sense of personal security. They will have to live with higher rates of unemployment, diminished quality of healthcare services, and even accept a lower life expectancy.

The bottom line is that there's not much the policy makers can do about it. Standards of living worldwide are going to drop: The most they can do is try to make the price of decades of irresponsibility more bearable. These are processes measured in years, not quarters.

Experience teaches that efforts to put off the price, as happened in 2003 with Greenspan's expansionary policy, merely do that - they put off the price to a later date, but the bill arrives and when it comes, it's bigger.

Shania, take the job, please, please take the job. Even if you don't know economic theory as well as the learned Ben Bernanke, at least you aren't a slave to mistaken concepts.

Sometimes what we need isn't an expert, it's a person with an open mind. Shania, come to the Fed! Better late than never.

 

The author is CEO of Psagot Compass Investments and head of foreign equity research at Psagot.