Central Banks Are the Fall Guys

For decades, the freedom of monetary policymakers to make difficult decisions without having to worry about political blowback has proven indispensable to macroeconomic stability. But now, central bankers must ease monetary policies in response to populist mistakes for which they themselves will be blamed.

CHICAGO – Central-bank independence is back in the news. In the United States, President Donald Trump has been  the Federal Reserve for keeping interest rates too high, and has reportedly explored the possibility of forcing out Fed Chair Jerome Powell. In Turkey, President Recep Tayyip Erdoğan has fired the central-bank governor. The new governor is now pursuing sharp rate cuts. And these are hardly the only examples of populist governments setting their sights on central banks in recent months.

In theory, central-bank independence means that monetary policymakers have the freedom to make unpopular but necessary decisions, particularly when it comes to combating inflation and financial excesses, because they do not have to stand for election. When faced with such decisions, elected officials will always be tempted to adopt a softer response, regardless of the longer-term costs. To avoid this, they have handed over the task of intervening directly in monetary and financial matters to central bankers, who have the discretion to meet goals set by the political establishment however they choose.

This arrangement gives investors more confidence in a country’s monetary and financial stability, and they will reward it (and its political establishment) by accepting lower interest rates for its debt. In theory, the country thus will live happily ever after, with low inflation and financial-sector stability.

Having proved effective in many countries starting in the 1980s, central-bank independence became a mantra for policymakers in the 1990s. Central bankers were held in high esteem, and their utterances, though often elliptical or even incomprehensible, were treated with deep reverence. Fearing a recurrence of the high inflation of the early 1980s, politicians gave monetary policymakers wide leeway, and scarcely ever talked about their actions publicly.

But now, three developments seem to have shattered this entente in developed countries. The first development was the 2008 global financial crisis, which suggested that central banks had been asleep at the wheel. Although central bankers managed to create an even more powerful aura around themselves by marshaling a forceful response to the crisis, politicians have since come to resent sharing the stage with these unelected saviors.

Second, since the crisis, central banks have repeatedly fallen short of their inflation targets. While this may suggest that they could have done more to boost growth, in reality they don’t have the means to pursue much additional monetary easing, even using unconventional tools. Any hint of further easing seems to encourage financial risk-taking more than real investment. Central bankers have thus become hostages of the aura they helped to conjure. When the public believes that monetary policymakers have superpowers, politicians will ask why those powers aren’t being used to fulfill their mandates.

Third, in recent years many central banks changed their communication approach, shifting from Delphic utterances to a policy of full transparency. But since the crisis, many of their public forecasts of growth and inflation have missed the mark. That these might have been the best estimates at the time convinces no one. That they were wrong is all that matters. This has left them triply damned in the eyes of politicians: they

  1. failed to prevent the financial crisis and paid no price; they are
  2. failing now to meet their mandate; and they
  3. seem to know no more than the rest of us about the economy.

It is no surprise that populist leaders would be among the most incensed at central banks. Populists believe they have a mandate from “the people” to wrest control of institutions from the “elites,” and there is nothing more elite than pointy-headed PhD economists speaking in jargon and meeting periodically behind closed doors in places like Basel, Switzerland. For a populist leader who fears that a recession might derail his agenda and tarnish his own image of infallibility, the central bank is the perfect scapegoat.

Markets seem curiously benign in the face of these attacks. In the past, they would have reacted by pushing up interest rates. But investors seem to have concluded that the deflationary consequences of the policy uncertainty created by the unorthodox and unpredictable actions of populist administrations far outweigh any damage done to central bank independence. So they want central banks to respond as the populist leader desires, not to support their “awesome” policies, but to offset their adverse consequences.

A central bank’s mandate requires it to ease monetary policy when growth is flagging, even when the government’s own policies are the problem. Though the central bank is still autonomous, it effectively becomes a dependent follower. In such cases, it may even encourage the government to undertake riskier policies on the assumption that the central bank will bail out the economy as needed. Worse, populist leaders may mistakenly believe the central bank can do more to rescue the economy from their policy mistakes than it actually can deliver. Such misunderstandings could be deeply problematic for the economy.

Furthermore, central bankers are not immune to public attack. They know that an adverse image hurts central bank credibility as well as its ability to recruit and act in the future. Knowing that they are being set up to take the fall in case the economy falters, it would be only human for central bankers to buy extra insurance against that eventuality. In the past, the cost would have been higher inflation over the medium term; today, it is more likely that the cost will be more future financial instability. This possibility, of course, will tend to depress market interest rates further rather than elevating them.

What can central bankers do? Above all, they need to explain their role to the public and why it is about more than simply moving interest rates up or down on a whim. Powell has been transparent in his press conferences and speeches, as well as honest about central bankers’ own uncertainties regarding the economy. Shattering the mystique surrounding central banking could open it to attack in the short run, but will pay off in the long run. The sooner the public understands that central bankers are ordinary people doing a difficult job with limited tools under trying circumstances, the less it will expect monetary policy magically to correct elected politicians’ errors. Under current conditions, that may be the best form of independence central bankers can hope for.

Requiem for White Men

WASHINGTON — Once upon a time … in America, it looked as if white men were at long last losing their tenacious grip on power.

A black man had made it into the White House. A woman in hot pink claimed the gavel in the House. A Latina congresswoman with a Bronx swagger emerged as the biggest media star in the capital. Six Democratic women — five pols and one mystic — earned their spots on the stage in the first presidential debates.

Male candidates who might have jumped to the head of the presidential pack in earlier eras are finding it impossible to rise anywhere near double digits in polls.

When I asked a friend who once worked for Barack Obama why a smart and appealing Obama protégé, Senator Michael Bennet of Colorado, was having a hard time breaking through, she replied: “The bar is much, much higher for white guys these days. You just have to be especially special.”

White male privilege is out of fashion these days. Yet we are awash in nostalgia for it.

Donald Trump has built a political ideology on nostalgia. And Quentin Tarantino has built a movie ideology on nostalgia.

In The Los Angeles Times, Mary McNamara observed that the moral of Tarantino’s new fairy tale, “Once Upon A Time In … Hollywood,” is, “Who doesn’t miss the good old days when cars had fins and white men were the heroes of everything?”

Dubbing the cowboys-versus-hippies movie starring Brad Pitt and Leonardo DiCaprio “nostalgia porn,” McNamara notes: “Watching two middle-aged white guys grapple with a world that does not value them as much as they believe it should, it was tough not to wonder if that something was the same narrow, reductive and mythologized view of history that has made red MAGA hats the couture of conservative fashion.”

In The New Yorker, Richard Brody called the movie, Tarantino’s biggest opening ever, “obscenely regressive,” a phrase that could easily be applied to the man in the Oval.

Both the Tarantino creation and the Trump creation feature scripted tough-guy dialogue, rough treatment of women and slurs against Mexicans. (“Don’t cry in front of the Mexicans,” Pitt warns an emotional DiCaprio in a tinsel town parking lot.)

But — except for the usual burst of violence that the director justifies the usual way, by leveling it at the most evil people ever, in this case the Manson Family — Tarantino’s time machine is a gentler ride. (This may mark the first time “Tarantino” and “gentler” have appeared in the same sentence.)

Bathed in a golden glow, Brad Pitt plays a world-weary stunt man and handyman to Leo’s Western star, Rick Dalton. Pitt’s character is a former war hero in the great midcentury tradition of American cinema. He reflects many of the values that America once proudly stood for:

  • toughness without belligerence,
  • charm without smarminess,
  • loyalty without question. He is
  • masculine yet chivalrous.

The iconic performance evokes other movie exemplars of the American male: Humphrey Bogart in “Casablanca,” Paul Newman in “Cool Hand Luke,” Steve McQueen in “Bullet,” Clint Eastwood in “Dirty Harry.” (Pitt’s significant other is a pit bull named Brandy — another contrast with Trump, who avoids dogs.)

Trump’s time machine is a vicious and vertiginous journey, all about punching down, pulpy fictions, making brown and black people scapegoats and casting women back into a crimped era of fewer reproductive rights.

Trump has inverted all the old American ideals, soiling the image of our country in the world and reshaping it around his grievances and inadequacies.

He is a faux tough guy who lets other people do the fighting for him, a needy brat who never accepts responsibility for his actions, an oaf with no trace of courage, class or chivalry.

Tarantino fashioned his nostalgic world out of love, while Trump fashions his out of hate.

His entitled and grabby ways illustrate why we need to leave that world behind. America is struggling to find a new identity with a more colorful mosaic, moving beyond our monochromatic past. More new heroines and heroes need to emerge, both onscreen and in life.

But first we need the credits to roll on Trump.

Two Years Into Trump’s Presidency, Obama Remains a Top Target for Criticism

It took all of one minute and nine seconds for President Trump to go after his predecessor on Friday — just one minute and nine seconds to re-engage in a debate that has consumed much of his own time in office over who was the better president.

It was former President Barack Obama who started the policy of separating children from their parents at the border, Mr. Trump claimed falsely, and it was Mr. Obama who had such a terrible relationship with North Korea that he was about to go to war. Mr. Obama had it easy on the economy, Mr. Trump added, but let America’s allies walk all over him.

The litany of criticisms, often distorted, are familiar, but Mr. Trump has turned increasingly to Mr. Obama in recent days as a political foil.

In part, that reflects Mr. Trump’s longstanding fixation with the former president. But it may also stem from the fact that Mr. Obama’s vice president, Joseph R. Biden Jr., remains the Democratic front-runner in the 2020 election.

“If you look at what we’ve done, and if you look at what we’ve straightened out, the — I call it the ‘Obama-Biden mess,’” he told reporters on the South Lawn of the White House before leaving Washington for a weekend at his golf club in Bedminster, N.J. “We’re straightening it out.”

The president’s focus on Mr. Obama after about two and a half years in office was even more intense during a trip to Japan and South Korea last weekend, when Mr. Trump repeatedly raised the subject of his predecessor without being asked, assailing him on a variety of domestic and foreign policy fronts.

“When in a corner, Trump falls back on the only organizing principle he has, which is attacking Obama — and usually lying about it,” said Benjamin J. Rhodes, a former deputy national security adviser to Mr. Obama. “I wouldn’t read anything more into it than that.”

Since 2011, when he explored running for president against Mr. Obama, Mr. Trump has had a singular obsession with the 44th president.

He repeatedly questioned Mr. Obama’s citizenship as part of the false “birther” conspiracy. As president, Mr. Obama struck back at the White House Correspondents’ Association dinner in 2011, when he roasted the reality television star as a lightweight while Mr. Trump sat grim-faced.

Since then, Mr. Trump has been determined to minimize or unravel Mr. Obama’s accomplishments, and lately has even suggested that his predecessor was behind a deep-state conspiracy with law enforcement and intelligence agencies to thwart his 2016 candidacy.

While other presidents have blamed their predecessors for various national ills — including Mr. Obama, who in his first term regularly pointed to former President George W. Bush — Mr. Trump takes it further than most.

It is less common for presidents to take on predecessors who are more popular than they are; Mr. Obama was viewed favorably by 63 percent of those surveyed by Gallup last year, while Mr. Trump’s job approval rating is 41 percent.

But Mr. Trump recognizes that his political base wanted, and still wants, someone who would be seen as fighting against Mr. Obama. Especially as Mr. Biden stumps the country on his record in the Obama administration, Mr. Trump sees a political advantage in taking down his predecessor and trying to lift himself as an outsider taking on a system he has led for over two years.

“Tell Biden that NATO has taken total advantage of him and President Obama,” Mr. Trump said on Friday. “Biden didn’t know what the hell he was doing and neither did President Obama. NATO was taking advantage of — now they’re paying.”

“President Obama and Vice President Biden,” he added, “they didn’t have a clue. They got taken advantage of by China, by NATO, by every country they did business with.”

By Mr. Trump’s indictment, Mr. Obama was too soft on China’s trade abuses and too easy on NATO allies who were not spending enough on their own defense, two issues that the current president has pressed much more vigorously. Mr. Trump in recent days has also blamed Mr. Obama for a dispute with Turkey, a NATO ally, over its purchase of S-400 missile systems from Russia. A former Obama aide denied that he refused to sell a Patriot system to Turkey but did object to a technology transfer Ankara demanded as part of a deal.

In leveling his criticisms at Mr. Obama, however, Mr. Trump routinely stretches the facts. As he has repeatedly, Mr. Trump insisted on Friday that had Mr. Obama remained in office, he would have gone to war with North Korea, a claim dismissed as ludicrous by the former president’s advisers.

In recent days, Mr. Trump has added a new claim — that Mr. Obama tried to meet with North Korea’s leader Kim Jong-un, only to be rebuffed, an assertion for which he offered no evidence.

“He called Kim Jong-un on numerous occasions to meet. President Obama wanted to meet with Kim Jong-un. And Kim Jong-un said no,” Mr. Trump said on Friday. “Numerous occasions he called. And right now we have a very nice relationship.”

After Mr. Trump floated this while in Asia last weekend, Mr. Obama’s final national security adviser, Susan E. Rice, used an expletive to deny it. “At the risk of stating the obvious, this is horse-sh*t,” she wrote on Twitter, asterisk and all.

Mr. Rhodes, her deputy, repeated the denial on Friday. “There is zero truth to the claim about wanting to meet Kim,” he said. “It’s completely made up and totally incoherent with his previous claim that Obama wanted to go to war with North Korea.”

Other former Obama-era officials have publicly disputed the notion as well, including James R. Clapper Jr., who was director of national intelligence; Wendy R. Sherman, who was under secretary of state; Daniel R. Russel, who was assistant secretary of state for East Asian and Pacific affairs; and Jeremy Bash, who was chief of staff at the C.I.A. and later the Pentagon.

Mr. Trump has also sought to rewrite the history of his own family separation policy at the border, telling audiences that it was Mr. Obama who started it and the current president who stopped it.

“President Obama built those cells. They were in 2014,” Mr. Trump said last weekend at a news conference in Osaka, Japan. He added, “I just say this: They had a separation policy. Right? I ended it.”

He was correct that the Obama administration built some of the detention facilities that have been at the center of the latest furor over the treatment of migrants detained at the border, but they were never meant for the long-term detention of children.

Moreover, while the Obama administration did break up families, it was relatively rare and typically in cases of doubt about the relationship between a child and an accompanying adult.

Mr. Trump’s administration announced a “zero tolerance policy” in April 2018 that resulted in nearly 3,000 children being forcibly separated from parents. After an outcry, Mr. Trump signed an executive order two months later directing officials to end the practice of family separation.

 

Comments:

John Townsend

Mexico

It’s generally agreed the measure of a president has to be based on the record. Then why does trump keep saying “I inherited a mess”? “A mess”? Sure … it’s Obama’s fault is it that he handed Trump a lousy economy that had created 16.5 million jobs? If you have near full employment, rising stock markets, strongest dollar in some time, rising consumer confidence, lowest uninsured percentage . . . What’s the mess he inherited?

Dow Jones going from 7,949 to 17,735 (+123%) S

& P 500 going from 683 to 2040

Unemployment down from 7.8% to 4.9%

GDP Growth up from -5.4% to 2.2%

Deficit GDP% down from 9.8% to 2.8%

Consumer Confidence up from 37.7 to 97.6

Uninsured Adults down from 18% to 11.8%

American cars sold up from 10.4m to 17.5m

This is what Trump inherited. He has created his own mess because he can’t grasp the magnitude and complexity of the job.