The Least Bad Choice


I have been watching various sentiment polls and Right/Wrong Track questionnaires with detached bemusement. Bemused because they are so silly, and detached because I know I can’t change human nature. What I can do is share a few modest insights; hopefully, these will allow you to gain a fresh perspective you might not have otherwise considered or perhaps even garner a better understanding of what is happening right here and now.

As we have discussed, in ordinary times, sentiment polls tend to be problematic: But these do not seem to be ordinary times. We are in a post-pandemic, popular-uprising environment. I wouldn’t call these issues unprecedented, but they are somewhat unusual.

People are unaware of what they believe, they have no idea what is going to happen in the future. Their expectations as to what will make them happy or satisfied in life are often misguided. This is why asking people what they will do, think, or feel in the future, or how they might behave is a nearly impossible task.

Since the worst of the pandemic began to wind down last year, we have been wrestling with two key issues: 1) Inflation, or the rate at which prices are rising; and 2) Costs, meaning the absolute level of prices.

Even as inflation peaked in June of 2022 and fell from 9% to 3%, people remained angry. The rate of change may have fallen, but everything remains more expensive. Absolute price levels are now 10-20% higher on everything from cars to houses to energy to rent. No wonder people whose wages rose a fraction of that are pissed off.

Now for the shocker: As bad as that sounds, the alternatives were much worse.

The nuanced, counterintuitive truth is that the pandemic presented policymakers with a series of terrible options. To their credit, they made the least bad choice. Those choices are still resonating today, impacting stock markets, bonds, inflation, and as we saw at the GOP debate last night, politics. The public wants someone (anyone!) to blame, but I want to suggest that the 2021-22 Inflation surge and resulting higher prices were the cost of avoiding a different fate. Had policymakers chosen differently, the net result would have been much, much worse.


Recall the situation 42 or so months ago. Covid-19 was running amuck, and nobody had the slightest clue what was going on. We were washing our grocery deliveries to stop the spread of a respiratory disease. Flying blind, with things about to get much worse, the government responses were: 1) Operation Warp Speed, a commitment to getting a COVID vaccine ready; 2) CARES Act 1, a $2.2 trillion fiscal stimulus putting cash into the bank accounts of 100 million families; 3) CARES Act II & III, another $1.8 trillion in spending, plus a focus on testing and vaccination, eviction halts.

Let’s consider a few potential counterfactuals.

Scenario 1: Do nothing: Don’t snicker, there were people who suggested that as an option. The claim was the free market would sort out personal protective equipment (PPE) andother supply chain issues. No state authorized lockdowns, just allow the virus to “burn itself out” after it infected 80% of the population. “Herd Immunity” was the watchword.

Scenario 2: Go small: Extend unemployment benefits for 3 or 6 months. Support vaccinations but don’t mandate them or masks or state lockdowns. Revisit to see if we need to repeat.

Scenario 3: CARES Act 1 but not 2 or 3: Do a big initial fiscal spend to get the problem down to a manageable size, then let the private sector do what it does best.

The problem with all of the above is that the results would have been devastating: Many more deaths, lots of people without money for food, rent, medicines, and mortgage payments. Millions of defaulted mortgages, 10s of millions of evictions — complete social chaos.

Without funding for vaccines, treatments, or tests, COVID-19 would have spread like wildfire, with no way to stop it. And without those government-ordered mitigation measures, cases and deaths would have surged uncontrollably. The entire overwhelmed healthcare system would have collapsed, making the debacle even worse. Total US death count: 10 or 20 million.

Oh, and the economy would have hurtled into the worst depression since the Great Depression of 1929. Recall that the Atlanta Fed’s GDP Now in June 2020 showed the economy had been cut in half, down -52.8%. Major industries – Travel & Hospitality, Retail, Entertainment, and Services – would have completely broken down. Companies would disappear, and the bankruptcy courts would have spent the next decade unraveling the mess.

Had the government done appreciably less, the results would have been disproportionately worse. It would have been a blood bath…


You don’t need to do a thought experiment to see what happens when the government elects to skip fiscal stimulus during or after a financial crisis. Look no further than the response to the Great Financial Crisis — nearly all monetary and almost no fiscal stimulus.

The Fed began its policy of ZIRP and QE while Congress put forth a puny extension of unemployment insurance and a modest temporary tax cut. A tiny infrastructure build was also included. Net result: more than 90% of the stimulus was monetary and appreciably less than 10% was fiscal.

The result of this emphasis on low rates helped capital owners; anything priced in dollars and credit soared, while those that did not have portfolios filled with stocks, bonds, real estate or businesses (e.g., middle and lower classes) struggled. Job creation was soft, wage gains nonexistent, consumer spending was punk, durable goods sales far below average. But hey, inflation was under 2% the next decade.

It was a weak recovery, made all the worse because Congress elected to skip the textbook Keynesian stimulus such as we saw following 9/11 or the Pandemic. The entire post-GFC economy was poor; no wonder it set up an environment for a populist uprising in the United States.


The public tends not to do thought exercises like counterfactuals. They like things simple, perhaps even oversimplified to black-and-white options. They point fingers, demand that heads roll. This is how crowds operate, and it is why they can become so dangerous.

The reality is the world is nuanced and complex, and simple answers to complicated questions are usually neither precise nor accurate.

I am grateful that my charge is to figure out how to deploy capital; it seems a lot easier than figuring out how to run for office, pandering to the public, telling them what they want to hear, rather than giving them the uncomfortable truth: Wildly oversimplified answers to the world’s thorniest and most complex problems.

The worst part of today’s politics is the politicians who fail to lead…



Is Partisanship Driving Consumer Sentiment? (August 9, 2022)

Who Is to Blame for Inflation, 1-15 (June 28, 2022)

More Sentiment Nonsense (July 28, 2023)

The Trouble with Consumer Sentiment (July 8, 2022)

Sentiment LOL (May 17, 2022)

Politics & Investing



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