Words of Wisdom From the World's Last True Macroeconomist

by Rick Barnard

Dr. Kurt Richebächer is more energized than I have ever seen him before. His dining room table is buried in economic essays and reports, some dating back to the 1970s. His computer is almost always turned on, ready to receive ideas and insights whenever Dr. Richebächer comes up with them.

His excitement is understandable, and quite infectious. Because he’s made a realization that could change how Americans look at the economy – forever.

I’m happy I can be here to witness it. I’m visiting him in Cannes, France, at his new apartment overlooking the Mediterranean. During my last visit, Dr. Richebächer treated me as a tourist, taking me to various sites and making sure I got to experience everything Cannes has to offer.

This time, while he is still as gracious a host as ever, he is eager to get down to business. I knew this visit would be different from the moment I put down my suitcase. Within minutes, I was having tea with Dr. Richebächer, discussing the problems economic Americans face yet seem unaware of.

Longtime DR readers will no doubt be familiar with them – the unreported weakness in unemployment, the statistical trickery that goes into the widely reported GDP numbers and the commonly believe falsehood that corporate profits are on the rise.

As I said, this is familiar territory, and I was afraid that my trip here would simply be an updated remake of the last one. But then Dr. Richebächer surprised me with a new idea that occurred to him.

“I realize,” he said in his thick German accent, “that there is no one left to talk about macroeconomics. Oh, some people come close, but no one sees the whole picture. I am one of the last voices left.”

“You see, the only economists left today focus strictly on the stock market. To them, nothing else exists. They take the case of one or two companies, and apply it to the whole economy. This is utter nonsense. And I realize, that is because they have no understanding of macroeconomics.”

Macroeconomics takes into account the whole picture – considering the flow of money from beginning to end. And this can give you a much better view of where the economy is going.

Consider the case of a company that cuts costs to increase profits. To a market analyst, that is the end of the story. The company is successful, and it’s stock should rise.

But macroeconomicly, it’s not that simple. Cutting costs can have consequences that reverberate through the economy. That’s because, by definition, cutting costs affects the revenue of other companies. If it buys less equipment from a manufacturer, or stops renting property for one of its offices, that’s less money in someone’s pocket.

Even if the company saves costs with layoffs, they essentially create unemployment, which will hurt other companies with lower consumer spending. If enough companies cut costs, they are cutting revenue from somewhere. And as the chain breaks down, the company will end up costing itself more in the long run.

It’s an important point, and one that goes unmentioned in today’s stock-obsessed economy. And that’s why Dr. Richebächer is more fired up than ever before.

“The old economists would never have allowed such a thing,” he told me. “They would have felt a duty to speak up about such things. And that is what I intend to do.”

Dr. Richebächer is now dedicated to getting the story out there – to remind the public how the economy works… and why macroeconomics matter. He’s gathering his 80-plus years of knowledge to make a case against today’s empty-headed analysis and to promote the value of classical thinking. He hopes to jumpstart a debate about what truly matters for economic well-being.

He knows he must act fast. Americans are barrelling into an economic disaster with no idea what’s coming. He wants to give Americans the knowledge they need to understand what is to come.

It won’t be easy. I’m here to help get his vision started… and hopefully help it become a reality.

More importantly, I’m here to discover how Dr. Richebächer became the last great macroeconomist. In the few hours I’ve been here, Dr. Richebächer has shown me Federal Reserve reports from the 1980s that highlight the same problems he talks about today. He showed me a report from a group he belonged to, which warned of the dangers of trade deficits and overzealous consumer spending in the late 1970s.

Where did these men go? Why did no men replace them? And what has given Dr. Richebächer the strength to continue his work even though he is now essentially a lone voice.

Of course, it hasn’t been all economics. Today we had lunch at a restaurant called L’Ondine ­- where you might remember I accepted the owner’s challenge to eat frog legs on my last visit. This time I did not eat anything amphibian related. But Richebächer did order a fine bottle of wine. We lifted our glasses to toast, and I surprised him by clinking my glass against his.

“Do you touch glasses in America?” he asked.

“For toasts, yes,” I replied.

“Hmm. The French never do. But they are the only ones. The Germans, the English, they always touch glasses. Here it is how you can tell the people who are not from here.”

A useful tip for telling the tourists from the locals…

The Daily Reckoning