Who Needs the Fed?. John Tamny

Kiffin, signed Rivals’ #1 recruiting class in 2010. He followed up with the #4 class in 2011 and the #8 class in 2012. Kiffin did this despite severe scholarship limits imposed on the team. Remember, Rivals ranks the classes based on points. Despite being unable to recruit as many players as before, the Trojans continued to sign 5-Stars that kept them in the recruiting title discussion.

      Interestingly, Kiffin was fired during the 2013 season. His replacement, University of Washington head coach Steve Sarkisian, signed the #1 class for USC in 2015. But to show the credit magnet that Carroll rebuilt at USC, Sarkisian had but one Rivals Top 20 recruiting class during his five years as head coach of the Huskies.¹²

      What’s unknown is how long USC will remain a lure for players if the coaches who have followed Carroll continue to underperform relative to this future Hall of Fame coach. As previously noted, Harbaugh observed that there’s “no bad way to see Michigan.” That describes USC now, and it’s a reminder that one person (Carroll) can build up credit that others will continue to access, at least for some time. The question once again is how long this will last. As evidenced by USC’s many years in the wilderness while they searched for a head coach to revive their fortunes, USC’s AAA credit rating in the recruiting sense may not last very long.

      Bringing it all back to Brady Hoke, market forces are rather wise. Despite being able to recruit for a name brand like Michigan, Hoke’s inability to field a winner ultimately meant that Michigan was starved of “credit” of the recruiting variety. This was a good thing.

      The great Austrian School economist Ludwig von Mises explained this phenomenon in his endlessly insightful book Human Action. The entrepreneur who fails to use his capital to the “best possible satisfaction of consumers” is “relegated to a place in which his ineptitude no longer hurts people’s well-being.”¹³ College football coaches are merely pursuing an entrepreneurial venture of another kind, whereby they vie for top athletes in order to field the best team they can. Despite being handed a brilliant resource in the University of Michigan, along with the athletes who line up to play there, Hoke failed. The market responded by starving him of resources and then removing him from a position in which he was failing at his stated goal.

      Hoke’s story looms large in a credit sense. Pick up the newspaper on any given day, particularly during an economic slowdown, and you will read economists calling for the Fed to “ease credit” so that struggling businesses can get back on their feet. What a shortsighted point of view.

      As opposed to situations to avoid, “recessions” are the market’s way of making sure that the allocation of resources to the Brady Hokes of the world ceases. Just as there’s a limited number of software engineers and microchips, so, too, is there a limited number of quality college football schools, coaches, and players who merit an expensive scholarship.

      The closure of the credit door on Hoke was healthy because it ensured a much more credible replacement in the form of Jim Harbaugh. The “real world” of business should be no different. If the Fed were truly led by wise minds, then they would do the opposite of fighting the market’s call for credit rationing that is meant to ensure the bankruptcy of poorly run businesses and the replacement of bad managers with better ones.

      With the above scenario in mind, we should be thankful that the Fed is not the sole source of credit in the U.S. economy. If it were, Brady Hoke would still be coaching Michigan to the detriment of the school, the players, and the alums, and a lot of businesses would be operating at a fraction of their potential. Happily, however, and despite the Fed’s naiveté, the allocators of credit similarly continue to relieve bad managers of positions that allow them to waste resources.

      The free market is infinitely smarter than the wisest collection of Fed minds on their best day. So, when we hear about central bankers working to blunt healthy market activity through credit “ease,” we should quickly conclude that rather than expanding credit, they’re at best destroying it. As the ensuing chapters will reveal, market forces quite thankfully reject alleged Fed medicine, and to the economy’s certain benefit.

       CHAPTER THREE

       In Hollywood, the Traffic Lights Are Almost Always Red

       There is a strange idea abroad, held by all monetary cranks, that credit is something a banker gives to a man. Credit, on the contrary, is something a man already has.

      —Henry Hazlitt, Economics in One Lesson, 43

      IN 1984, the now-classic film Splash was released to critical and box-office acclaim. It was the #1 grossing U.S. movie in its first two weeks of release, and, at the time, it was the fastest moneymaking film in Disney history.¹

      To this day, Splash views quite well. Some will disagree, but this film directed by Ron Howard and produced by Brian Grazer arguably presented John Candy (Freddie Bauer) at his comedic best. The late actor went against his eventual fumbling type as the fast-talking, womanizing brother of Tom Hanks (Allen Bauer). Likewise Eugene Levy, who, while achieving greater critical renown in later years, owing to his work in the Christopher Guest films (Best In Show most notably), shone as the eminently quotable Walter Kornbluth: “What a week I’m having!”

      Before Splash, Howard and Grazer created the very funny Night Shift (formerly the Fonz, Henry Winkler played against type à la John Candy in Splash). Since then, this duo has reeled off a string of critically acclaimed movies, including Parenthood, Apollo 13, A Beautiful Mind, Frost/Nixon, and Rush. These films don’t begin to tell the story of their productivity, not to mention what Grazer and Howard’s Imagine Entertainment has done for television, with shows like 24 and Arrested Development. Best friends, Grazer and Howard have a track record that is the envy of Hollywood.

      What is notable about Splash is that, as Grazer recalls in his 2015 book A Curious Mind: The Secret To a Bigger Life, “only a thousand people in Hollywood told me we couldn’t make a movie about mermaids.” A movie “about love, about finding the right love for yourself, as opposed to the love others would choose for you” was viewed as unmarketable. It was seen on the surface as an unrealistic film about a human (Hanks) pursuing romance with a mermaid, played by Daryl Hannah. From the initial idea to its eventual release, Splash took more than seven years to produce. Grazer recalls that even Ron Howard wasn’t initially interested in making the picture.²

      What does Grazer’s story about a classic film tell us about credit? Quite a lot, actually.

      While the Federal Reserve can lower the fed funds rate with an eye on rendering access to the economy’s resources (credit) easy, credit is nearly always tight in the movie industry. Outwardly about creativity, the film industry wouldn’t exist in its present prosperous form if movies were easy to finance. To understand this better, it’s worthwhile briefly migrating away from Grazer to discuss some of the career highs and lows of A-list actor and auteur, Warren Beatty.

      Beatty’s track record, while not as impressive as Grazer’s, merits respect. In 1967, he was a costar in Bonnie and Clyde. The film was ahead of its time in the late 1960s, and it still influences directors today. In the American Film Institute’s rankings of the top 100 movies of all time, Bonnie and Clyde sits at #42.³ In 1975, Beatty starred in the enduring classic Shampoo. In 1978, he starred in and directed Heaven Can Wait. All three were box-office and critical successes, but Beatty wasn’t done.

      In 1981, he directed Reds, a biopic of John Reed, the journalist who chronicled the Russian Revolution in his book Ten Days That Shook the World. The film received an Academy Award nomination for Best Picture, and, while it didn’t win, Beatty took home an Oscar for Best Director.

      Beatty could