The world’s central bankers are scaring the crap out of me. Why? They are being terribly terribly polite in a situation that calls for a little shouting. Every indicator on the global cockpit is flashing “fiscal stimulus.” It is right next to the one flashing “FREE MONEY – why the f**k aren’t you spending it?” But the best the bankers can do is a little throat clearing nod in that direction…?!?
Monetary policy has obviously hit its limits (see negative interest rates, bond buying, etc. etc.) But fiscal policy (government spending) is stuck somewhere between “contractionary” and neutral. Like a plane where one pilot is pulling the stick back while the other pushes it forward (that actually happened in a recent crash BTW). Which brings us to Korean plane crashes….
There’s a useful anecdotal vein of “plane crashes because the co-pilot is too polite to tell the captain he’s f**ing up and/or the captain is too macho to admit the mistake.”
- The most infamous (via Malcom Gladwell) is KAL flight 801 flying into a mountain in Guam. The captain thought he was on course. The co-pilot and engineer know he isn’t. Coming from a hierachical, polite culture, they couldn’t summon up anything better than polite hints; “ummm, well, maybe we might consider the idea of a mountain. One that it wouldn’t be much fun to fly into? No offence sir. Just a passing thought.” Then they all died. But they DID avoid acrimony. No shouting in the cockpit! Harmony preserved to the end!
- The other classic case is a Columbian airlines flight where the crew were too macho to admit they needed help. Instead, they ran out of fuel. Then they all died. But at least they didn’t have to admit a mistake!
Now consider this recent comment by the Fed’s “grey eminence” Stanley Fischer. Is he a bit too worried about acrimony in the cockpit? My emphasis added.
“There was once a great deal of work on the optimal monetary-fiscal policy mix. The topic was interesting and the analysis persuasive. Nonetheless the subject seems to be disappearing from the public dialogue; perhaps in ascendance is the notion [IE – totally ideological] that–except in extremis, as in 2009–activist fiscal policy should not be used at all. Certainly, it is easier for a central bank to change its policies than for a Treasury or Finance Ministry to do so, but it remains a pity that the fiscal lever seems to have been disabled.“
“It remains a pity?!?” “Notion” WTF? “Ah yes Mr. Scott, it remains a pity you didn’t pack more food, take sled dogs, teach us to ski, and otherwise listen to reasonable advice instead of your “notions.” I suppose it just remains for us all just freeze to death like gentlemen. Oh dear…” How about “It is pathetic and cowardly that Congress can’t face reality and authorize a stimulus program! Replace some of that rotting infrastructure! That huge backlog we’ll have to eventually borrow to replace anyway. Why aren’t we doing it while we can borrow for free! Are you all numbskulls! Is it just because you can’t bear to give Obama a victory? Or give up this unfounded “notion” that government might have a useful role during a crisis? Is that worth penury? This isn’t a game you fools.”
How about the ECB’s Constanciao yesterday? OK he’s not French, but you really need to insert a little gallic shrug at the end
“To normalise inflation in the euro area we urgently need higher growth that can reduce negative output and unemployment gaps, using all really available policies. If not monetary policy, then what?” [gallic shrug]
That’s the best he can do? How about “Hey Merkel, can you quit the Protestant morality play, pull your head out of your ass, and help steer us away from a really ugly crack-up?” Is he worried he might offend her?
OR Draghi himself.
Instead, Draghi sounded resigned when asked about euro-area fiscal policy. That domain spans countries including Spain, France and Italy that are close to or beyond their legal deficit limits, and nations that can afford to spend more — read Germany — that have promised voters they won’t do so. “The measured driver of the economy and the recovery basically remains our monetary policy,” he said.
Huh!?! What does “measured driver” even mean? How about “Well, we’re doing the best we can but what we really need is for the Germans to start spending some of that negative interest money we keep trying to shovel their way. They need to give up hoping to export their way out of the problem. Its their banks on the hook anyway, so why don’t they face facts and spend a little. “
The need for stimulus is no longer some fringe, lefty position. It is consensus. Even right-wing-y Wall Street economist types are gently trying to make oh-so-polite noises around how it might not be such a bad idea to, err…, spend on infrastructure and stuff.
The problem is that the Captain isn’t listening. And no-one is willing to shout it. To force the debate. They don’t want to face the wrath of the ideologues. Or admit they were wrong. Or lose that invite to Davos. So we fly on oh-so-politely into the night and rain. Hoping luck will save us…
FWIW, I actually see a pretty good chance
luck market forces will save us from this willfully blind/bad/blundering/bumptious policy failure. To that end, I’ve got a truly riveting post on monetary velocity teed up. But that seems more like Sunday night reading material. 🙂
KAL flight 801: A Korean Air plane flying from Korea to Guam was going through bad weather and stormy clouds. The captain had committed the plane to visual landing, which meant that he had to be able to see the airport runway. Here is some of the conversation among the pilots. Pay close attention to a couple of comments from the supporting crew to the captain and to how the captain responds to them, or doesn’t:
First officer: Do you think it rains more in this area?
Flight engineer: Captain, the weather radar has helped us a lot.
Captain: Yes. They are very useful.
What the first officer is trying to do is warn the pilot that it may not be safe to do a visual approach without a backup plan for landing, in case the runway is not visible. Such communication of hinting from first officer to pilot is not uncommon in Korean culture. However, driven by respect to authority and fear of upsetting their superior, the co-pilots ultimately contributed to the plane crash as they allowed the pilot to start a visual landing without an alternative.